How will the US presidential elections affect Israeli hi-tech?

Over the past year, discussions in Israeli advanced technology circles addressed a number of pressing issues: the internal political situation, fundraising challenges, layoffs, the ongoing armed conflict and the call-up of staff for reserve service – in the hope of a quick return of the hostages. However, as US presidential elections approaches, a topic thousands of miles away arises: who will be the next president of the United States and what impact this will have on Israeli startups and, perhaps most importantly, on the timing and terms of the IPO.

Israeli start-ups on standby

After a two-year IPO drought, many Israeli startups are now on alert, prepared for the expected reopening of the IPO window next year. The signs are promising. Israeli high-tech companies raised $2.9 billion in the second quarter, signaling an easing of the decline in investment flows, according to IVC data. This is the first quarter since the beginning of 2022 in which there was no year-on-year decline. The macroeconomic environment is gradually improving, and M&A 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, would give the market greater confidence, possibly unlocking investments and initiatives that have been delayed during this turbulent period. As corporate valuations stabilize and companies move towards profitability, founders are returning to IPO plans with a more cautious and measured approach. This creates favorable conditions for exits and public offerings. The postponing the transaction with Wiz (Alphabet’s $23 billion takeover bid) aimed at an IPO is a prime example of this market readiness.

The role of earnings in the IPO schedule

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

If former US President Donald Trump wins, there may be a favorable increase in the number of IPOs. Although some voters have reservations about his style and policies, the market generally views his economic approach as favorable to IPOs. During his previous term, he supported a booming market, record IPOs, corporate tax cuts and sweeping reforms on Wall Street. Trump cut the corporate tax rate from 35% to 21% and introduced tax breaks that will expire next year. Analysts believe that if re-elected, he would expand these benefits, which could again boost IPO activity.

IN JANUARY, Bill Ackman and his wife Neri Oxman bought 4.9% of the Tel Aviv Stock Exchange for $25 million, expressing confidence in the Israeli economy. The author asks: what would happen if similarly influential businessmen made a total investment of $1 billion in an Israeli technology start-up (source: AMIR COHEN/REUTERS)

However, Trump’s selection of J.D. Vance as his running mate introduces some uncertainty. Vance is known for opposing tax cuts and advocating for stricter antitrust laws – policies that send mixed signals on Wall Street. The question remains: Who would set the tone on these issues if Trump returns to office?

In turn, Kamala Harris’ victory may delay IPO plans. While Harris has a stronger relationship with Wall Street than Biden because of her extensive fundraising experience and the support of influential Wall Street and Silicon Valley figures, her adherence to the Democratic economic agenda tends to favor a more cautious, regulatory-heavy market and IPO environment. Harris recently announced her intention to adopt Biden’s tax plan, which proposes raising the corporate tax rate from 21% to 28%, which will dampen enthusiasm on Wall Street and potentially create a less favorable climate for IPOs.

Still, Harris’ more balanced approach to antitrust enforcement, especially compared to some of her Democratic counterparts, suggests she may not take an aggressive regulatory stance against tech giants. This may mitigate the impact on the IPO climate, although it is unlikely to accelerate it.

IPO readiness and market conditions

With the IPO window expected to reopen next year, Israeli startups have prepared to take advantage of favorable market conditions. Over the past two years, startups have increasingly focused on achieving profitability and refining their value propositions, making them better prepared than ever to transition to public markets as soon as conditions allow.

Companies such as Wiz, which have postponed their exit in favor of a public offering, are an example of the cautious yet optimistic approach of many startups. In this market, Israeli high-tech companies that are mature, profitable and have a track record of competitive advantages are best positioned to take advantage of the favorable landscape.

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Local, geopolitical and macroeconomic conditions are aligning in a way that could make the post-election period particularly favorable for IPOs of Israeli companies. 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 making every effort to be as prepared as possible for their IPO adventure, especially those that have achieved a strong foundation of profitability and a solid market position.

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

The author is managing partner at Amplefields Investments.