YL Ventures details challenges facing Israeli cybersecurity startups

Israeli Internet Security Much like the global industry, the industry has been undergoing an evolution that seems to have peaked in 2021 with soaring funding rounds, overvalued valuations, and multiple newly minted unicorns, but in 2022 the market has Sharp cooling rounds in the case of slow, sharp decline and frozen growth. The alarming speed of these fluctuations has repercussions for the entire industry throughout 2023, as Israeli cybersecurity startups must adapt to this new post-boom funding reality and find their footing.

Each year, YL Ventures monitors, analyzes and publishes funding and acquisition data for the Israeli cybersecurity market, using insights from industry luminaries to illuminate trends and changes in this highly competitive and ever-expanding industry. While total fundraising is down through 2023, we can identify trends that indicate a positive trajectory for the industry, including an increase in the number of exits. These trends are evident in the continued investment in promising new cybersecurity startups and the determination of skilled and experienced entrepreneurs to find and solve the most acute and pressing security problems in today’s business world.

Image Source: YL Venture Capital

Beyond general macro, particularly in the online space, the common explanation for this downward trajectory is a continuation of the market correction following strong growth in 2021. By the end of 2023, Israel faces national, economic and geopolitical challenges. The ongoing war between Israel and Hamas has had the same impact on Israel’s tech industry as it has on other areas of Israeli society, but its resilience and determination form the basis for growth, stability and longevity despite unprecedented challenges. Despite this, the last quarter of 2023 saw several impressive rounds of funding and acquisitions for Israeli cybersecurity startups, and the impact of these events will likely not be felt until the first half of 2024.

Overall funding for 2023

Image Source: YL Venture Capital

In 2023, technology investment as a whole continued to decline, with the total financing amount of 71 rounds of financing for Israeli cybersecurity startups being only $1.89B, a 41% decrease from the total of 94 rounds of financing of $3.22B in 2022. Erica Brescia, managing director of Redpoint Ventures, said: “In 2021, irrational exuberance in financial markets has led to overvaluation of new startups, including online companies.” “What we are seeing now is not an economic slowdown, but a recovery. to pre-pandemic sanity – market correction paves the way for healthier startups.”

Early funding

Contrary to overall funding trends, the average seed round increased significantly for the sixth consecutive year, from $9 million in 2022 to a record $9.8 million in 2023. This can be attributed to the continued growing demand for breakthrough security solutions to solve ongoing security concerns and continued investor interest in backing innovative founding teams capable of doing so. While the average number of seeds has increased, the number of seed rounds in 2023 was only 36, down from 46 in 2022.