In the wake of the ongoing debate regarding judicial reform legislation in Israel and its ensuing civil unrest, the country’s tech ecosystem has been grappling with significant challenges. A recent survey conducted by Start-Up Nation Central, an organization focused on supporting Israel’s technology industry, sheds light on the implications faced by the Israeli tech sector thus far in 2023 and its expectations for the future.
The survey, carried out from July 18-19, included leaders from start-up companies, venture capital funds, and tech investors.
The survey respondents provided valuable insights into the current state of affairs and how they perceive the impact of the domestic situation on their businesses. A total of 734 professionals participated in the survey, representing 521 companies. The breakdown of respondents included 615 from start-up and tech companies, and 119 from the investor community.
Start-ups are moving their money
One of the key highlights from the survey was the significant number of Israeli start-up companies taking active legal and financial measures to mitigate risks. Approximately 68% of the start-ups surveyed revealed that they have already initiated steps such as withdrawing cash reserves, relocating their headquarters outside of Israel, moving employees abroad, and conducting layoffs.
Moreover, 22% of companies reported diversifying their cash reserves outside of Israel, while 37% of investors noted that companies in their portfolios have withdrawn some of their cash reserves and moved them abroad. This shift indicates a growing concern among businesses and investors about the potential consequences of the ongoing unrest.
Start-ups are moving their home bases
Another notable finding was the trend of changing headquarters locations. Around 8% of companies stated that they have already begun the process of relocating their headquarters outside Israel, and an additional 29% expressed their intention to do so in the near future. Among the investors, 20% noted that companies in their portfolios have already started this process, and a significant 69% reported that companies in their portfolios are considering relocating their headquarters outside of Israel.
“The situation is becoming increasingly worrisome as we observe companies and investors taking active steps to move their activities away from Israel. This trend has intensified notably over the past three months,” said Avi Hasson, CEO of Start-Up Nation Central. “Steps such as registering a company abroad or launching new start-ups outside Israel may have long-term implications that could be difficult to reverse.”
Even Israeli investors are hesitant about investing in Israel
Furthermore, the survey revealed that a growing number of Israeli investors are considering or have already started investing in foreign companies. Approximately 67% of the investors surveyed stated that they are exploring opportunities beyond Israel, indicating a shift in Israeli VC investment strategies.
Comparing the Israeli tech sector’s expectations for recovery with the US technology and VC market, the survey found a stark contrast. Only 12% of Israeli investors believed they would witness signs of recovery in the Israeli venture capital market in the coming six months. In contrast, a substantial 65% of investors expressed optimism about the US venture capital market, with many expecting a more rapid and significant rebound in the United States.
Hi-tech is against a lot of the debated legislation
The survey highlighted a glut of negative sentiment regarding the reform and its effect on the Israeli economy. Among company executives, a staggering 78% reported that the judicial reform is having a negative impact on the activity of their companies. This finding underscores the challenges and disruptions that businesses in the Israeli tech sector are facing due to the ongoing legislative changes and civil unrest.
Investors, too, expressed significant concerns regarding the reforms’ effects on their portfolio companies. An overwhelming 84% of investors reported that the judicial reform has negatively influenced the performance and prospects of the companies they have invested in. This sentiment reflects the broader uncertainties that investors are grappling with, as they navigate the evolving landscape.
Beyond the direct effects of the judicial reform, the survey also reveals investors’ apprehensions about the potential consequences of any deterioration in relations between Israel and the United States. A substantial 80% of investors believe that such a deterioration in diplomatic ties would have a negative influence on the tech industry in Israel. This finding highlights the interconnectedness of the Israeli tech ecosystem with the global economy, particularly its strong ties with the United States as a key market for tech innovation and investment.
Hasson concluded by noting that “As an organization with a mission to strengthen the technology industry in Israel, it is our duty to share this data with decision makers in Israel and provide an up-to-date picture of the situation as it unfolds.”
