Israel’s Startup Ecosystem: Down But Not Out


Israel’s Startup Ecosystem: Down But Not Out -Gudstory

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The world is still reeling from Hamas’s deadly attacks on Israelis last weekend – and what has unfolded since, including a barrage of retaliatory attacks on Gaza.

A look at how things are going in the startup ecosystem sheds light on its impact on the entire country.

In such a small country, almost everyone knows someone who was directly affected by the attacks, or someone who was involved in the subsequent rescue and retaliation – and often all three.

Technology is, without a doubt, a huge part of Israel’s economy. In 2022, it contributed more than 18% to the country’s GDP, the most of any single sector, according to the Israel Innovation Authority’s latest annual report.

A total of 14% of Israeli citizens work in high tech, which is about 13 million in a country of only 9.2 million people. The active number of startups in the country stands at 9,000 (third highest in the world after the Bay Area and NYC) and these startups have collectively brought $95 billion into the country through venture capital in the last five years.

Combining the business growth of start-ups with that of big tech companies in the country – Intel, Microsoft, Nvidia, Google and many other companies that have operations in Israel – they collectively exported $71 billion last year, all of which Industries account for 48.3% of the total amount exported.

Undoubtedly, these numbers are going to be much lower this year, not least because the disruption of this war is coming directly on the heels of a major protest movement.

The tech industry led opposition to the government’s bid for judicial reform. Even before the fighting began, it was voting with its feet, and some companies and investors are already refusing to do business in the country with little prospect of further reforms. (In turn, that effort has been stalled: People on both sides of that debate are now standing together against what they see as a much bigger fight and threat.)

Even before last weekend’s attack, startup investment in Israel was down significantly from last year. As TechCrunch’s Anna Heim reported in July, “IVC data shows that with $3.2 billion in provisional funds for the first half of the year, funding activity in Israel is 73% lower than the same period in 2022.” happened.” Other countries and regions have reported similar declines in their private-market capital flows this year.

As the war enters its sixth day, many people are being called into the reserves, or volunteering to help in other ways. With the tech industry being young, it is estimated that between 10% and 30% of all tech workers in Israel are being mobilized. More than 500 vice-chancellors have also pledged their support to the efforts.

“In the spirit of peace and unity, we encourage the global enterprise community to support and engage Israeli startups, entrepreneurs and investors as they navigate these challenging times,” the signatories wrote.

To better understand the situation on the ground for Israeli entrepreneurs, we spoke to several startup founders, PR people who work with startups, and investors. The dominant response was that businesses needed to continue operating as best they could to help ensure the economic viability of the country.

making sure everyone is ok

The founders and operators we spoke to emphasized that after ensuring the safety of their teams, they have begun to consider how to resume work. This is not a simple formula.

“Currently, the emphasis is on finding a balance between supporting the Israeli team members, some of whom want to keep working to take their minds off what’s going on for a bit, and some who want to keep working.” “Can’t even think about,” Omer Davidi, CEO and co-founder, BeeHero, an Israeli agritech startup, told TechCrunch. “The priority is to focus on core company operations, especially in the short term, as we await a clear understanding of the situation as it unfolds,” Davidi said.

Quantum Machines co-founder and CTO Jonathan Cohen says the war is clearly having an impact on people, but they are returning to work. He said, “I can’t deny that we all had trouble concentrating on work during the first few days of the war.” He explains that many of his employees have been called to active duty, but those who were not are starting to focus on work again, despite the circumstances.

Shuli Galili, founding partner of venture capital firm Upwest, says the situation is complex, but companies are doing their best to deal with the challenges of operating in a war situation. “People are being called up,” he said, adding that some are civilians who are in the U.S. and are looking to come back and serve, but the response to the war goes beyond military service. “At this time many people who have not been called up for service are volunteering to provide equipment, medical supplies and food. “Many tech developers are building technology to manage logistics and help communities deal with the situation.”

“The call for reserved duty has affected a significant percentage of our workforce. My estimate is that at least 10% of our citizens have either been drafted into the army or have voluntarily joined,” said Kfir Ben Shushan, founder and president of scooter startup Innokim. “This has inevitably put a strain on many businesses,” he said.

Lazar Cohen, whose company Concrete Media works with many startups, says people are contributing as much as they can, but businesses also need to keep going.

“In view of our clients and my agency, 10-25% of the Israeli team members have been called up for reserve duty,” he said. Others on the team are helping by donating blood, hosting survivors of attacks, packing supplies for troops or covering for a called-out team member.

Economy matters too

While everyone is worried about the war and its fallout, startup founders and their investors also understand the importance of keeping these businesses going. For most Israeli startups, the customer base is global and for many, their go-to-market teams are in the US and therefore not directly affected by the war. The current situation may slow down product development but will not directly impact sales in the short term.

While customers have been understanding for the most part, Cohen says companies are working to continue operating under difficult circumstances.

“As we recover from the initial shock and fear of the attack, many tech workers and executives see it as their duty to keep the tech industry running. Technology is Israel’s biggest export and the main engine of our economy and with a long and difficult war ahead, it is vital that we keep working and innovating,” he told TechCrunch.

Sharon Seaman, partner at YL Ventures, says it’s important that companies maintain communication with customers. “It is important for Israeli startups to ensure continuity of business operations to maintain their customer relationships,” he said.

What could be more difficult a situation than when startups fall into the inevitable rhythm of their existence: raising money to scale up their operations, and then doubling down and expanding those operations. Should the war continue in the region and country, what impact will this have on future startup investors and LPs of startup investors?

Oren Yunger, managing partner of GGV, says his company will do everything possible to ensure that Israeli startups in his company’s portfolio do not go bankrupt due to the war.

“I can say with absolute confidence – even though we don’t know how long it will take and who will be affected – I am 100% sure that none of our companies will close as a result of this time,” he said.

Mike Butcher, Frederic Lardinois, Anna Heim and Kyle Wiggers also contributed to this report.


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