Markets forecast end to Middle East war

Venture investors are experts at handling risk and uncertainty. They must buckle in for the ride.

DESPITE THE HORRIFIC Hezbollah rocket attack on a soccer pitch that killed 12 innocent youngsters in Majdal Shams last weekend – and the premature demise of Hamas chieftan Ismail Haniyeh in Tehran – the war between Israel and Iran’s Hamas and Hezbollah puppets will soon be over, and Israel’s economy will surge ahead.

How can I make such a bold prediction? Because the market is a very good forecaster of future events, and Israel’s venture market bounced back in H1 2024 to the then-record level it achieved in 2020, with nearly $5 billion in new investments. Israeli startups are on track to raise more than $10 billion this year, with AI and cybersecurity startups doing particularly well, according to figures from IVC-LeumiTech.

I am not ignoring Israel’s ongoing war against Hamas barbarism in Gaza, nor the still uncertain fate of the Israeli hostages abducted on Oct. 7, nor the daily barrages of rockets, drones and cyber attacks launched at Israel by Iran’s stooges from Lebanon, Iraq and – most bizarrely – Yemen.

Israel’s venture ecosystem continues to experience instability, uncertainty, and risk. But those are also three basic pillars of venture investing. Our whole business is about managing risk. War is just its most extreme expression.

Unfortunately, and despite what you may see on your TV screens, Israel and its enemies are not the only people at war in our world. In the heart of Europe, Russia’s brutal invasion of Ukraine seems destined to enter a fourth year. In Sudan, more than 8 million people have been forced from their homes and 25 million are in urgent need of humanitarian assistance, while the death toll has spiraled so high that it has become impossible to count. Yemen remains locked in a bloody civil war. There are ongoing conflicts in Ethiopia, Haiti, Myanmar and between Armenia and Azerbaijan. There are Islamist insurgencies in Iraq, Nigeria, Somalia, Chad, Mali, The Sahel and Mozambique.? China, Taiwan, Japan, North Korea, the US and the Philippines are all jockeying for position in the oceans between Vietnam and Russia.

We could just sit and bemoan the current geopolitical situation but, sadly, we must get used to it, wherever we are. Wherever you are in the world, instability and war are embedded in our modern reality.

Venture investors are experts at handling risk and uncertainty. They must buckle in for the ride. They know how to navigate these troubled times. Since the war erupted with Hamas’s massacre on Oct. 7, I have consistently predicted that Israel’s tech economy will emerge strengthened from this crisis as it has from all previous ones. The public markets clearly demonstrate this resilience. Following initial drops in the aftermath of the October attack, the main Tel Aviv Stock Exchange index is trading nearly 10% up from the high it stood at before the Hamas onslaught, while the shekel has recovered to a 5% premium on its pre-attack level.

The war is not yet over, but markets often anticipate future political developments, and the public markets seem confident that the war will soon be behind us.

Private markets, by their very nature, are more difficult to read. Israel’s venture numbers are encouraging. They suggest that investors are plowing funds into the region in the belief that their money will not only be safe, but produce real financial dividends.

The internal numbers at OurCrowd confirm this. With more than 400 portfolio companies – many of them in the region – and thousands of individual investors around the world, we have a unique insight into the often opaque behavior of the private market. So far in 2024, the number of new active investors on the OurCrowd platform has jumped by 62 percent compared to the same period in 2023. The value of the first investments by these new members of our community was almost double that of the equivalent cohort last year. The percentage of registered visitors to our platform becoming active investors more than doubled, while the number of deals we were able to offer our investors rose from 46 in the period from January to July 2023 to 68 in the same period this year.

Successful raises

Despite all the headwinds, our local portfolio companies have raised hundreds of millions of dollars from investors since the start of the year. They include several Israel-based startups within range of rockets from Hamas and Hezbollah. Successful raises for Israel-based OurCrowd startups so far in 2024 include $120 million for Hailo, $80 million for CytoReason, the acquisition by Permira of a majority stake in BioCatch at a valuation of $1.3 billion, a $42 million Series D round for Scopio Labs, and a Series B round of more than $10 million for BlueGreen Water Technologies.

These Israeli venture successes are matched by increasingly good news from elsewhere in the region. Our portfolio company Plenty signed a $680 million joint venture with Mawarid, a subsidiary of Alpha Dhabi Holding (ALPHADHABI.AD) in Abu Dhabi, to build five indoor farms in the Gulf region over the next five years as part of an effort to bring food security to the UAE. Integrated Data Intelligence, OurCrowd’s Abu Dhabi-based AI startup, signed the first commercial customers for its predictive investment intelligence engine.

Meanwhile, the pace of successful exits – both through public offerings and acquisitions – is also picking up, giving investors sought-after liquidity even in this challenging climate. Israel’s tech community has been transfixed by the on-off efforts by Google (NASDAQ: GOOGL) to acquire Wiz for $23 billion. OurCrowd’s contribution to the exit celebrations this month include the acquisition of Innovalve by American medical device giant Edwards Lifesciences (NYSE: EW) and Cyabra’s announcement that it plans to list on Nasdaq via SPAC at a $70 million valuation to pursue its detection of online disinformation aimed at governments and corporations.

This internal anecdotal snapshot of our own investment platform, combined with the general venture numbers from IVC-LeumiTech and the public market indices, give me renewed faith in the resilience of Israel’s tech economy, despite the current troubles.

Investment is not just an indicator but also a driver of future trends. Investment and prosperity can help to bring long-term peace to the most troubled areas. Just look at Europe in the generation after 1945. The framers of the Abraham Accords were right to think that European-type economic ties between Israel and its Middle East neighbors could also bring down the Sand Curtain and usher in a new era of cooperation before those hopes were dashed by Iran and its Hamas, Houthi and Hezbollah minions. That hope still stands, and there are strenuous efforts behind the scenes to ensure that once the fighting in Gaza is over, Hamas is defanged, and the hostages are rescued, the Middle East can continue on its march toward a better future.

So I predict that Israel’s war will end soon, that there will be a resumption of the regional process of rapprochement triggered by the Abraham Accords, and that Israel’s tech economy will emerge even stronger than before.

About ‘Investors on the Frontlines’

I’m the CEO and Founder of OurCrowd, the global equity investment platform that gives individual accredited investors access to private market startup deals alongside top-tier VCs. If you are an investor, private family office or financial advisor, subscribe here for my biweekly commentary or follow me on Twitter. I welcome your comments in the response section below.