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This has been a confusing and volatile year in the high-tech industry so far. The ability to predict future development or the direction of the market is all but impossible, and any player who pretends to do so will usually be proven wrong in no time. Companies that have reached huge peaks of value, some would even say crazy, fall in the face of reality. New technologies like Web3, which were the hot thing of last year, have become a dim memory today. The main discourse that exists in the high-tech industry is how to survive the period of confusion with minimal damage and maximum cash in the register. Cash has become the new king, and a company that has reserves knows that it will continue to exist, even if it will do so under more difficult conditions.

But the problem is deeper, as many companies discover the new confusing reality and realize that they are not prepared at all. In 2020 and 2021, companies ran at full speed towards unconditional growth. They raised funds, hired hundreds of employees, acquired other companies that could generate them additional income or complementary technology, and above all, they rushed forward without thinking. In 2022, the race stopped. Many companies came burdened with unnecessary staff, scattered around the world at high costs, and with too little money in the bank for hard times. At that time, most of these companies had no reason to deviate from the racetrack in which the entire market was racing. But now, waking up and adapting to the new reality is very tiring.

In 2021, there were no companies that raised to a value lower than in their previous fundraising value. In 2022, there will be many companies that will be forced to raise to a significantly lower value. A decline in value is a hard blow to a company. The immediate meaning is damage to the options of all employees of the company, which become less valuable, as well as damage to all shareholders of the company. The reduction in value requires the company to mention the owners, including those of the investors and executives. Many times the hardest blow is felt by the founders of the company, who are forced to give up significant holdings in the process.

Bizzabo is not the first Israeli company to be forced to raise to a lower value this year, but was the first to be exposed, and probably not the last. Calcalist revealed last week that the company, which developed a digital conference management system, raised $35 million at a valuation of $200 million, which represents a 30% decrease in value compared to the previous fundraising in 2020. Bizzabo said that “We are proud that our internal investors believe and continue to invest in the company. We regret that the article is published at this time, before the deal has been closed and its terms are not yet final.”

The choice to recruit despite the decline in the value of the company testifies not only to its distress, but also to the courage of its executives and founders, who are not afraid to take steps, how painful they are for the survival of the company . In addition, the step proves the faith of the founders in the future of the company and their ability to achieve a return to it in themselves that compensate for the decrease in value.

The first sign of distress is usually reflected in layoffs. The high-tech companies in Israel rushed to recruit employees because it was possible and not because they were needed. Companies recruited workers and only then found a real position, and sometimes this led to a layer of hidden unemployment in the company. In 2022, many companies realized that without a rapid cut in the workforce, their ability to continue would be difficult. Not only because of the financial expenses on human resources, but mainly because the investors of the company demand to see quick and painful steps. On the other hand, for the managers of the companies, this is an opportunity to diagnose the situation, to dismiss the employees with whom they are less satisfied, to express excessively inflated departments and to retain the core of the organization as much as possible .

The last few years were the years of entrepreneurs and employees, they set conditions and mostly got what they wanted. Investors were forced to compete with each other, submit investment proposals almost without due diligence, invest large sums at an unrealistic value, even in the early stages. 2022 is the year of investors. They choose who they want to invest in, take their time and due diligence and above all add hard conditions to the deal.

Insight Partners is the largest investor in Israeli high-tech. The true power of Insight was revealed in the case of Bizzabo. At the end of 2020, Insight led Bizzabo’s $138 million round, which included very generous secondary deals with the company’s veteran investors and its employees. A year and a half later, Insight, and probably the company itself, realized that without a quick capital infusion, it would be difficult to continue. A quick round of about $35 million with other investors in the company was made, with Insight $15 million. That in exchange for a clause in the agreement that shows how strong it is.

The section, known as Liquidation Preferences, defines who will receive money first if the company is sold. According to the terms in the upcoming round, Insight will get a triple return for every dollar invested, and only after it gets its share and actually guarantees itself a nice exit, will the other investors and the company itself see money. This is a clause that used to be used very carefully in the past, and even then with a very modest multiplier. A multiplier of 3 times the investment is a demonstration of strength and power not only in front of the company, but also in front of the entire market. Insight is the leading investor in the market and will determine what the investments look like from now on in companies that need money fast.

In the context of the apparent need, high-tech companies are also turning to alternative means of financing, which according to estimates will become central means of financing in the coming year. The most prominent of these is the increase in debt, or in other words loans that companies take to finance current operations instead of diluting ownership. Along with the advantage of credit lines that do not dilute the company’s operations and allow it to breathe, it must be remembered that the loans must be repaid. A company that finds it difficult to do this will quickly reach bankruptcy and expensive court proceedings. In addition, lines of credit for high-tech companies are very expensive compared to standard bank interest rates. The main reason for this is the level of security that the high-tech enterprise can provide – its revenue and its intellectual property – which are usually insufficient in times of need.

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