Startup Snapshot report: Embrace transparency, Israeli resilience prevails

Israeli start-ups should be transparent with their investors about war-related challenges, according to a new report by Startup Snapshot.

The report, produced in partnership with Deloitte Catalyst, the Zell Entrepreneurship Program at Reichman University, and the Finsec Innovation Lab and Consiglieri, showed that 96% of investors recommended that new companies refrain from ignoring the Gaza conflict and instead acknowledge "the undeniable hurdles and obstacles in today's unique environment."

The report said, "Founders are urged to address these challenges directly and take control of the narrative. The key lies in openly communicating the war-related challenges faced by their ventures and articulating a strategic approach to overcoming each obstacle. 

"This proactive and transparent communication not only fosters trust but also demonstrates the resilience and adaptability of founders in navigating adversities."

The report, which included interviews with more than 100 investors and was shared exclusively with The Jerusalem Post, showed that investors were impressed with how Israeli start-ups navigated work during the conflict. Some 89% said that this conflict taught them about the "skills of Israeli talent, including that it is possible to run a startup during a war and the ability of Israeli teams to work under pressure."

Moreover, only 17% of investors recommended start-ups hire talent abroad to mitigate war-related risks.

"The report gives an unfiltered view into the private investment considerations around Israeli tech," said Yael Benjamin, founder and CEO of Startup Snapshot. "While the war presented significant challenges to start-ups and heightened investment concern, we don't see an overwhelming sense of panic among the investor community, with the majority reporting that they do not plan to stop or slow down investments in Israeli tech in 2024. 

"The current conflict showed the VC community the immense resilience of Israeli talent and the ability to deliver under extreme pressure, which in the long run has the potential to strengthen our position globally."

Most investors plan to keep investing in Israel

A key point from the report: The vast majority of investors (86%) plan to keep investing in Israel at the same pace in 2024 as they did in 2023, even though it should be noted that investments dropped a lot last year.

Most striking was the lack of impact the recent decision by Moody's to downgrade Israel's credit rating had on potential investment. Some 80% of investors said they would not change their investment plans despite Moody's decision. 

"Overall, there is a lot of negativity in the headlines, and I think we see cautious optimism," Benjamin stressed. "The economy globally was experiencing a downturn and everything in Israel has added more stress for founders. But we see a glimmer of positivity in that most investors don't want to stop investing in Israel or even reduce investments here. Some even say they would invest more this year than last."

Moran Massad Hadar, Deloitte Tech sector audit partner, expressed similar sentiments. "There are many reasons to be optimistic when it comes to the Israeli ecosystem," she said.

"The Israeli entrepreneurs demonstrated unparalleled resilience- even in this unusually difficult year. I believe that in the future, the impressive coping skills of the Israeli ecosystem in the face of the crisis will position local entrepreneurs not only as being innovative and bold but also as having tremendous mental resilience."

The survey also found that most investors (83% of local Israelis and 56% of global investors) took advantage of dropping valuations. 

What is the number one concern for investors? Lack of fundraising, the survey found. However, only about a third (35%) stated their intention to provide funding to their portfolio companies to assist them in navigating through this challenging period.

Another challenge from the report is that artificial intelligence investors think Israel needs to catch up regarding AI technology. Less than half (42%) said Israel has a competitive edge in the field. 

"Unlike other sectors where Israel boasts a global competitive advantage, such as cybersecurity or medical technology, the nation has faced delays in establishing itself as a dominant player in AI," the authors of the report wrote. "This delay can be attributed to several factors, including limited access to large-scale datasets necessary for training AI algorithms, stiff competition from established AI powerhouses like the United States and China, and a shortage of skilled AI talent relative to demand."

Most of the survey was taken in January, with some follow-up questions in February after Moody's decision to drop Israel's credit rating.