Nir Netzer, Venture Partner, MENA at Tenity and Chairman of the Israeli FinTech Association – FinTech Aviv
The State of Israel prides itself as a leading nation in the technology field, particularly in agriculture, cyber defence, and financial technologies. The Israeli FinTech ecosystem is rapidly developing and offering revolutionary solutions to the world.
However, in the current climate, it seems that there is a need for adopting a cautious mindset and preparing for the worst. With the global recession and the political instability in Israel, the most significant threat to the tech industry seems to come from the investment sector. The political and economic condition greatly influences the industry’s activities. Global economic circumstances are also a significant factor in supporting the growth of companies in the ecosystem and in exporting financial technologies outside of Israel.
It is important to note that the FinTech industry in Israel is still stable and resilient, enjoying significant interest among foreign investors and corporations seeking to develop innovation in the field within Israel’s borders. Israeli FinTech companies lead the way in international markets, representing Israel with breakthrough technologies that are increasingly attracting the attention of numerous foreign companies and financial institutions worldwide, such as banks, insurers, investment firms, and foreign funds.
Summarising 2022 in numbers, we can see that despite the global complexities in fundraising, the Israeli FinTech industry attracted substantial amounts of foreign investment. A total of about $1.6 billion was invested in the sector, mainly in capital markets and trading technologies as well as in digital banking solutions – those that help both giant companies provide financial services to their customers and allow traditional and digital banks to serve their customers more efficiently.
It’s interesting to see that over the years, the proportion of investments made by foreign investors in the Israeli high-tech sector has consistently remained at around 75% of the total investments, while only 25% of investments are made by local investors. However, this is not always a positive thing.
If we divide foreign investors in the Israeli technology sector into two groups, there is the first group of “Steady Demand” investors who believe in the success of the Israeli market and deeply understand the sector’s ability to cope with regional fluctuations over the years. Most of them see the current situation as just another random bump in the Israeli high-tech ship’s journey.
On the other hand, the second group of “Excess Return” investors has shallower connections to the Israeli technology sector, views the current situation from a point of view of extreme instability, and therefore, over time, will seek to find other investment channels with lower risk and higher potential returns.
There is a real concern that we are facing a significant slowdown in foreign investments from both the first and second group of investors, which will lead to a medium-term drying up of funds, the curbing of new initiatives, and ultimately, technological stagnation. The remaining question is how quickly the Israeli high-tech industry can recover from the expected blow and present renewed growth.
The fact is that 2022 presented impressive results, with Israel being a leader in publicly traded companies on the NASDAQ per capita, and third in the world after the US and China. Israel’s national resilience is represented by a rich technological ecosystem that represents the country and its citizens worldwide, only after 75 years of existence. In addition, the Israeli FinTech and InsurTech sectors represent us with pride, with more than 15% of Israeli startups defined as unicorns coming from these fields.
Therefore, given the political instability, global recession and general concern, the question arises – what are the alternatives for promoting technological entrepreneurship and nurturing Israel’s economy?
It seems that the Israeli high-tech industry, which has enjoyed long-standing government support, will continue to thrive despite the challenges ahead. However, we now bear a double responsibility. The first is the technological responsibility of entrepreneurs and innovators who do not give up even in difficult times, seeking to make the world a better place through innovation – the responsibility to continue to initiate, invent and innovate.
The second is the social, political, and Zionist responsibility for the well-being of all of us, which motivates us to act tirelessly for goals that justify the means we have taken.
Throughout the years, we have worked hard to position Israel as the world’s leading innovation center, one that enables Israeli FinTech companies to lead the global Fintech revolution with breakthrough technological solutions in blue and white colors.
Today, this goal is more important than ever, and we will continue to promote it in the coming years, hoping for fruitful years of significant action for the benefit of the industry and the State of Israel.
Author: Nir Netzer
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Tenity Fund is actively looking for FinTech investments in the region. Please contact Nir if you’re looking to raise capital for your FinTech company.