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How will the US presidential election affect Israeli high technology?

Posted on by L. Dreeye
How will the US presidential election affect Israeli high technology?

Over the past year, discussions in Israeli high-tech circles have covered a number of pressing issues: the domestic political climate, fundraising problems, layoffs, the ongoing military conflict and the drafting of personnel into reserve service – with the hope of a quick return of the hostages. . However, as the US presidential election approaches, a topic thousands of miles away is emerging: who will be the next president of the United States and how this will affect Israeli startups and, perhaps most importantly, the terms and conditions of IPOs.

Israeli startups on standby

After a two-year IPO drought, many Israeli startups are now in a holding pattern, ready for the expected resumption of IPOs next year. The signs are promising. Israeli high-tech companies raised $2.9 billion in the second quarter, indicating an easing in the slump in investment flows, according to IVC. This is the first quarter since the start of 2022 without a year-over-year decline. The macroeconomic environment is gradually improving, and mergers and acquisitions trends show that companies are focusing on profitability and strengthening their value propositions.

The end of the ongoing war, which we all hope will come soon, will add greater certainty to the market and will likely open up opportunities for investments and initiatives that have been put on hold during this turbulent period. As valuations stabilize and firms seek profitability, founders are rethinking IPO plans with a more cautious and measured approach. This creates favorable conditions for exit and public offering of shares. The delay of the Wiz deal (Alphabet’s $23 billion takeover bid) aimed at an IPO serves as a prime example of this market readiness.

The Role of Outcome in IPO Timing

The outcome of the US presidential race could further accelerate these changes and prove favorable for IPOs, especially for mature Israeli companies. Many Israeli startups are now considering two different scenarios:

If former US President Donald Trump wins, there could be a favorable surge in IPOs. While some voters have reservations about his style and policies, the market generally views his economic approach as favorable for an IPO. During his previous term, he promoted rapid market growth, record IPOs, corporate tax cuts and extensive reforms on Wall Street. Trump cut the corporate tax rate from 35% to 21% and introduced tax breaks that expire next year. If re-elected, analysts believe he will expand those incentives, which could reignite IPO activity.

IN JANUARY, Bill Ackman and his wife Neri Oxman bought a 4.9% stake in the Tel Aviv Stock Exchange for $25 million, signaling confidence in the Israeli economy. The author wonders what if similarly powerful businessmen invested a total of $1 billion in an Israeli tech startup (Photo: AMIR COHEN/REUTERS)

However, Trump’s choice of J.D. Vance as his running mate introduces some uncertainty. Vance is known for opposing tax cuts and advocating stronger antitrust laws, policies that send mixed signals to Wall Street. The question remains: who will call the shots on these issues if Trump returns to office?

In contrast, a Kamala Harris victory could delay IPO plans. While Harris has a stronger relationship with Wall Street than Biden, thanks to her extensive fundraising experience and support from influential figures on Wall Street and Silicon Valley, her commitment to the Democratic Party’s economic agenda tends to promote a more cautious and tough-minded in regulating the environment for markets. and IPO. Harris recently announced her intention to accept Biden’s tax plan, which proposes raising the corporate tax rate from 21% to 28%, dampening Wall Street’s enthusiasm and potentially creating a less favorable climate for IPOs.

However, Harris’ more balanced approach to antitrust enforcement, especially compared to some Democratic colleagues, suggests she may not pursue an aggressive regulatory stance against tech giants. This could mitigate the impact on the IPO climate, although it will likely not accelerate it.

IPO readiness and market conditions

With the IPO window expected to open next year, Israeli startups are poised to take advantage of favorable market conditions. Over the past two years, startups have increasingly shifted their focus to achieving profitability and refining their value propositions, leaving them better prepared than ever to move to public markets as soon as conditions allow.

Companies like Wiz, which delayed its exit in favor of an IPO, exemplify the cautious but optimistic approach many startups are taking. In this market, Israeli high-tech companies that are mature, profitable and boast competitive advantages are best positioned to capitalize on the favorable situation.

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Conclusion

Local, geopolitical and macroeconomic conditions are converging in such a way that the post-election period could be particularly favorable for Israeli IPOs. However, the pace and timing may be greatly influenced by the results of the US presidential race. Regardless of whether Trump or Harris takes office, Israeli high-tech companies are eager to be as prepared as possible for IPOs, especially those that have achieved a solid foundation of profitability and a strong market position.

Ultimately, while the election results may impact the pace of IPOs, Israeli companies should continue to refine their value propositions, ensuring that they are IPO-ready for any favorable conditions that may arise in the US market.

The author is the managing partner of Amplefields Investments.