Israel's tech sector has been mired in crisis for the past 19 months with thousands of employees laid off, foreign development centers and local companies closing down, and a significant reduction in available capital for founding new startups and financing their early stages. But to what extent has the crisis affected the major companies in the sector and could it bring about their collapse?
How did we examine this?
In order to measure the growth or contraction of Israeli tech companies in 2023 "Globes" examined the growth patterns of nearly 100 unicorns and Israeli public companies on the LinkedIn social network. The network, which is very popular with tech workers worldwide, is based on voluntary reports from employees who update their employment status to create additional contacts and publicize their activities in the industry. The update is done gradually, and not always in real time, but beyond the absolute numbers, the trend is important and indicates whether the companies are growing or shrinking. Despite the difficult situation, a large unicorn or a recognized public company has not yet closed in Israel. Most of the average growth in the big companies is positive, but tends towards zero in most cases.
The workforce situation at most Israeli tech companies remains static
The bleak predictions given for 2023 were partially realized with a decline in capital invested in tech companies, the absence of IPOs and a fall in exits. However, in terms of hiring employees, negative figures at the end of 2022, turned into to an increasing growth rate for most of 2023, among unicorns and public companies. Yet, with the war rumbling on, it is difficult to draw optimistic conclusions with many companies waiting for reservists to return to work before planning ahead.
The layoffs announced at Orca Security held on Wednesday could likely be a sign of things to come. Furthermore, tech companies and venture capital funds postponed the new financing rounds in order to avoid lowering their valuation by investors. Aqua Security waited about three years and raised $60 million according to a value similar to the round in which it raised funds in 2021, just over $1 billion.
Unicorns are no longer special with a growth rate like public companies
The tech crisis, which began in May 2022, resulted in a major decline in the pace of the creation of new unicorns - privately-held tech companies worth over $1 billion. Before then, these companies were able to raise hundreds of millions of dollars once or twice a year, at an increasing valuation. A "Globes" examination found that the rate of growth in the number of employees of unicorns, which was three times greater than the rate of growth of public companies in the second half of 2021, has been significantly smaller over the past year. From the summer of 2021, the growth has been similar to that of public companies. At the end of 2023, the monthly growth rate of unicorns was only 0.6%, while the corresponding figure among Israeli public companies was 0.4% per month.
Cybersecurity is losing altitude; Employee growth is close to zero
Israeli cybersecurity companies, some of which led the exit table over the last year, have been cautious about hiring new employees and growth has slowed accordingly. While their growth rate reached 10% at the end of 2021, they ended December with average growth of just 0.8%. This is one of the segments with the lowest growth rate in the Israeli industry, together with fintech and insurtech. The fastest growing sector among Israeli tech companies is for human resources management products, such as remote work management and salary payments, in part due to Deel, which has been recording an unusually high double-digit growth rate every month.
Mobileye has significantly increased its number of jobs
Israel's tech sector has not succeeded in creating large companies in generative AI, the leading tech trend worldwide, with the exception of Amnon Shashua's AI21 Labs, which has developed large language models. A glance on the LinkedIn jobs page of AI21 shows that it has reduced the number of jobs being advertised by 7%. However, it should be stressed that AI21 Labs is one of Israel's fastest growing unicorns.
Among other unicorns Gong increased the number of jobs advertised on LinkedIn by 156%, Lightricks by 85%, Mobileye by 86% and Wix by 75%.
Palo Alto Networks leads in advertising new jobs
Palo Alto Networks, a US cybersecurity company with a large Israel development center and an Israel founder has increased the number of jobs its has advertised by 338% over the past year, while its rival Check Point Software (Nasdaq: CHKP) increased the number of jobs advertised by just 14%. Comeptitors Wiz and Orca Security reduced the number of jobs advertised while Sentinel One (NYSE: S), whose share price has fallen 41% since its IPO in 2021, has reduced the number of jobs advertised by 24%. In the field of API security both Salt and Noname have reduced the number of jobs advertised.
Published by Globes, Israel business news - en.globes.co.il - on January 4, 2024.
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