photo above: Anti-government demonstration in Tel aviv last month. Photo: Techtime
A major judicial reform planned by the elected government to reduce the power of the supreme court, and widespread civil resistance to this reform, are shaking social stability in Israel. Now it begins to take its toll on the local technology sector, the acclaimed jewel in the crown of Israel’s econoy. A new report published by Start-Up Nation Central, reveals the scope of the crisis in the Israeli High Tech sector.
The July 2023 survey questionnaire was completed by 734 professionals, representing 521 companies: 119 investors and 615 respondents from Startup/tech companies. The findings are dramatic especially when it comes to relocation plans: 68% of Israeli startup companies have begun taking active legal and financial steps, like withdrawing cash reserves, changing HQ location outside Israel, relocation of employees and conducting layoffs. Among them, 22% of companies have alredy diversified cash reserves outside Israel and 37% of investors say companies in their portfolios have withdrawn some of their cash reserves and moved them abroad.
Relocation is a serious and slow process: 8% of companies report that they have already begun the process of changing HQ locations, and 29% reported their intention to do so in the near future. 20% of investors note that companies in their portfolios have begun changing HQ location and 69% of investors noted that companies in their portfolios intend to do this in the future.
Looking for recovery signs
The current political instability is also shaking the local VC industry: Investments outside Israel are growing as a component in Israeli VC investment strategy, and. 67% of investors are investing or are considering to invest in foreign companies. While 65% of investors already see signs of recovery in the US venture capital market or believe they will see them in the coming six months, only 12% of investors in Israel, observe this trend.
The report is troubleing because tecnology is the leading and most important sector of the Israeli economy. The CEO of Start-Up Nation Central, Avi Hasson, said: “Companies and investors are taking active steps to move activity away from Israel and this behavior has increased significantly over the past three months.” He said that the damage may deep and hard to recover: “Concerning trends like registering a company abroad or launching new start-ups outside Israel will be hard to reverse.”