The fire sales of Hailo and StreamElements are the painful reminder of the cheap money era
Hailo and StreamElements, which raised a combined total of about half a billion dollars, were recently sold in fire sales. This reflects the collapse of the "growth at any cost" model in the Israeli high-tech sector.
Two companies that raised a combined total of about half a billion dollars were sold in a fire sale almost secretly last week: Hailo and StreamElements. At first glance, it is difficult to find a common denominator between the Edge AI chip company Hailo and the content platform for creators StreamElements. The former operates in the worlds of hardware and DeepTech, and the latter in the worlds of software and streaming. However, the sale of both at prices significantly lower than the total capital they raised is not accidental, but a representative junction point in the new dynamics of the Israeli ecosystem.
To understand how two such different companies arrive at a similar result, one must examine the "trap of financed growth." This is a phenomenon where generous funding during the boom years created an impossible gap between the companies' valuation on paper and their true economic market value.
The first and most prominent common line is the gap in valuations and its impact on the priority of asset distribution. Both companies raised tens and hundreds of millions of dollars according to unicorn or near-unicorn valuations. When the time for repayment arrived in the current macro environment, the actual sale price did not cover even a fraction of what the company's investors had invested, especially those in the late stages at high valuations, which led to the sale of assets at a deep discount while sharply erasing value for shareholders and employees.
Beyond that, both encountered scaling and profitability challenges unique to their fields that weighed on cash flow:
At Hailo, the impressive technology encountered long sales cycles, rigid profit margins of the hardware world, and relatively slow adoption of edge chips in the market. At StreamElements, the business model that relied on the world of influencers and live-streaming experienced a sharp erosion when digital advertising budgets shrank in the post-boom period.
Both companies suffered from a high cash burn rate relative to the independent revenue stream they managed to generate. In the absence of access to the IPO market and without the ability to raise additional rounds without severely damaging the ownership structure, the only option left for both was consolidation as a rescue solution. Global giants like Microchip and Razer identified the opportunity to acquire intellectual property and high-quality technological teams at bargain prices, thereby preventing a complete collapse but completely changing the companies' narrative.
Will the Israeli market learn from the disappearance of two significant companies from the Israeli landscape at a tiny price and a heavy loss for investors? There is great doubt about this. The hope is that the Israeli high-tech market will move from a focus on growth stories at any cost to a careful examination of capital efficiency. Companies that do not establish a sustainable cash flow model and continue to rely on massive fundraising will eventually find themselves on the same path, where the technology may survive under an international corporation, but the independent economic value built over the years dissipates. However, the massive fundraising we see every day by companies without any revenue proves that investors do not like history lessons.
