Navigating challenges, expanding opportunities: Insights and trends from Israel's thriving consumer-facing industry. A comprehensive review of the B2C ecosystem's performance and future prospects.
From a branch of the startup nation that virtually didn't exist 15 years ago, through to the first seeds planted by gaming companies, to a thriving industry riding on the waves of rising digital consumption - the Israeli B2C industry is nothing short of a success story. Reaching roughly 30% of the tech industry today, B2C is no longer a foreign concept to Israeli entrepreneurs, product experts, marketeers and investors. In fact, it may be the industry that finds the right opportunities for growth even in a time of crisis.
I know it's not trivial to talk about opportunities during this period, but as the Disruption Nation - this is what we do best. In times when reality is perfect, we as Israelis often can't find the cracks through which to break in and do something different. Instead, we're are at our best when reality requires innovative and out of the box solutions. When we have to break the rules and re-build, we have the ability to bring the same creativity we put into our products and technologies to cracking efficiencies, org structure and financial models. As scarcity drives innovation, this challenging period might actually be an opportunity to shine.
So for this upcoming period, our challenges are around maintaining profitability and efficiency, while continuing to innovate and drive growth. But if there’s an industry that can work through this delicate balance, it's the Israeli B2C industry.
In this report, you'll find our perspective on the opportunities that lie ahead, across all verticals, and the knowledge and tools you and your companies will need to seize them. As a sworn optimist, I truly believe this global economic crisis will make all of us better, stronger and more resilient and, despite all of its challenges - it will be a moment of growth.
Despite a turbulent year, Israeli consumer-first startups showcased strong resilience, both in growth and profitability.
US GDP growth returned to a positive outlook in 2022: 3.2% in Q3 and 2.9%
in Q4.
In Q4 ‘22, the number of people daily using Facebook, Instagram and WhatsApp was at its highest ever.
The landscape of consumer-first digital companies scaled massively over the last few years.
From a startup nation that mainly focused on B2B and mostly B2E (such as cybersecurity), we’ve seen a growing share of global consumer focused brands out of Israel.
Ron Tamir
Founding Partner, Kaedan Capital
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Alan Feld
Co-Founder and Managing Partner, Vintage Investment Partners
of companies surveyed reported positive growth YoY, despite the turbulence of 2022 and a high base of 2021.
of surveyed companies reported growth of over 20% YoY.
of companies that reported YoY revenue growth, also reported higher profits vs. 2021.
of companies reported higher profits by more than 20% YoY vs. 2021
Chemi Peres
Managing Partner and Co-Founder, Pitango
Year 2021 set a record breaking in investments in Israeli tech.
However, throughout 2022 we saw a decline by 43% in funding and 15% in number of deals.
When looking at funding trends by half, and considering the overall drop in 2022
We're actually at an even lower run rate, as historically H2 has been a stronger half.
The sharpest decline has been in investments in companies in growth stage, while early stage investments are less impacted.
Year 2021 set a record breaking in investments in Israeli tech.
However, throughout 2022 we saw a decline by 43% in funding and 15% in number of deals.
When looking at funding trends by half, and considering the overall drop in 2022
We're actually at an even lower run rate, as historically H2 has been a stronger half.
The sharpest decline has been in investments in companies in growth stage, while early stage investments are less impacted.
Source: Meta Investors Survey, 2022
Valuations were dramatically impacted in 2022: 60% of investors estimated valuations of their portfolio companies were down 20-50%.
Danny Cohen
General Partner, Viola Ventures
2022 was a challenging year:
US inflation was at its highest level in 40 years, reaching 9.1% in June 2022. However, it improved later in the year, ending at 6.5% in December 2022. (source: US BEA)
Consumer confidence declined significantly during 2022 amid rising prices and concerns of a looming recession.
Consumer savings were at their lowest level in decades. In December 2022, the personal saving rate (i.e. the ratio of personal savings to disposable personal income) in the US amounted to 3.4%, down from 7.5% in December 2021. (source: US BEA)
There are some signs for cautious optimism, but it remains to be seen how 2023 will shape up:
GDP growth returned to a positive outlook with 3.2% in Q3-22 and 2.9% in Q4-22 (source: US BEA)
The US labor market remained strong with a low unemployment rate of 3.5% in December 2022 (source: US BEA)
Consumer spending (in real value) in the US remained strong in 2022 (but consumers did dig deep into their savings) (source: US BEA)
Retail sales were up 9.2% YoY during 2022 vs. 2021 (source: US Census)
Fashion
Jewelry
Beauty
Home
Other
The majority of companies are bootstrapped or have raised less than $5M to date. Funding isn’t as common in e-commerce as in other tech industries in Israel. As a result, most of these companies are profitable and healthy businesses - an advantage in 2022.
However, companies continued to invest in improving efficiency during 2022. 40% of companies reported they improved their profitability by over 20% vs. 2021.
US e-commerce continued to pace strong even in a challenging year:
Online shopping significantly accelerated in 2020. The question was what would happen onced stores opened up. It turns out that old habits die hard.
However, e-commerce's share out of total retail in the US has remained strong and at a stable, high rate of ±15% out of total retail. This is 85% growth vs. pre pandemic.
Source: Statista
Felix Leshno
Founder & CEO, Underoutfit
Eytan Levit
Co-Founder, Mixtiles
The rise of the bootstrapped health businesses
The ongoing question around consumers in health
The multi-serve model is becoming mainstream
Consumer packaged health goods: Formulated foods designed to meet people or pets' nutritional needs.
Wellbeing: Holistic solutions to improve people's quality of life and prevent disease.
Health tech: Supportive technologies throughout the patient's journey or for particular health conditions.
We saw decline in mega-rounds (-60%), M&A activity (-50%), and IPOs and SPACs (18 vs. 99 in 2021).
On the positive side, we saw 107 startups reaching unicorn status (second highest year after 2021) and a 29% increase in median angel deal size.
Source: CBS Insights, State of Digital Health 2022 Report
Only 37% of the digital health companies that raised in 2022 were D2C, compared to 43% in 2021.
Together with health D2C stocks feeling market pressure (Peloton, Beachbody and more), and mobile privacy updates raising customer acquisition costs, it’s easy to understand the environment in which health bootstrapped companies have been born – and why health companies expanded their offering to additional revenue streams (payers, providers, employers and government applications).
High prioritization of health and wellness attributes today, Millenials vs overall, % of respondents
Future high prioritization of health and wellness in the near term, Millenials vs overall, % of respondents
Dror Ceder
Founder and CGO, Lumen
Although health and wellbeing is an essential part of our quality of life, the question remains if consumers have the affinity to pay-out-of-pocket for those products or solutions, especially in times of crisis.
Health consumers can be segmented by age and health status (healthy, single chronic, polychronic, etc), but it’s obvious that there are additional factors like genetics, social, life habits, financials, motivations and many others that determine each person's perceived health and wellbeing (equalling happiness and life expectancy).
Digital health solutions have been gaining momentum in recent years, and the pandemic has accelerated their adoption. These solutions offer numerous benefits, including increased access to healthcare services, improved patient outcomes and reduced healthcare costs.
Access to health data is already becoming a critical component of personalized care and this trend is likely to continue. Personalized care is an advanced approach that tailors treatment and self-care to the individual needs of each patient, based on their unique medical history, genetics, lifestyle and other factors.
AI has already shown promise in a variety of healthcare applications, such as medical image analysis, clinical decision support and predictive analytics.
XR technologies, such as AR and VR, are also becoming increasingly prevalent in healthcare, particularly in areas such as medical education, surgical planning and pain management.
Categorized by the following revenue streams
Money raised to date
Number of employees
Annual revenue
Revenue growth in 2022
Education (startups such as Simply, Masterschool and TinyTap)
Productivity (startups such as AI21, CallApp and Karma)
