(TIMES OF ISRAEL) – Amid Israel’s war with Hamas, around 70 per cent of Israeli tech firms and start-ups are facing disruptions in their operations as a chunk of their employees have reported for reserve duty, according to a survey by the Israel Innovation Authority (IIA), and Start-Up Nation Policy Institute (SNPI).
Israel has already called up more than 300,000 reservists, many of whom are working in local tech companies.
With an estimated 15 to 20 per cent of tech sector employees mobilised, the survey conducted among a sample of 500 tech firms showed that over a quarter have been hit by both a shortage of key personnel and difficulties in raising crucial financing. Many firms also cited a decline in employee performance either due to a lack of childcare arrangements, with many schools and kindergartens shut, or because of mental stress.
Over 70 per cent of the respondent start-ups in the survey said they had to postpone or cancel orders and projects. They cited the inability to conduct pilots and clinical trials or advance important R&D projects, alongside difficulties in exporting and importing. About two-thirds said they had technical and operative problems connected to the war.
In addition, about 40 per cent lamented that their efforts to raise financing, including investment agreements, got cancelled or were put on hold. Out of the start-ups in danger of immediate closure, 60 per cent reported funding difficulties. Only 10 per cent are managing to have meetings with investors.
“The slowdown in fundraising cycles and the mobilisation of reserve soldiers to the war pose a challenge for a significant number of high-tech companies,” said IIA CEO Dror Bin. “This preliminary survey and the many in-depth conversations we have had indicate that there is a significant number of high-tech companies with a short runway for whom the war has delayed or stopped their capital raising round.
“This means that there are companies that are at risk of being closed in the coming months.”
These worrying trends prompted the IIA last week to launch an emergency funding plan that will allocate NIS 100 million ($A 39 million) in aid grants to provide about 100 cash-strapped start-ups with a lifeline.
The Israeli economy’s dependence on the tech sector has significantly grown in the past decade, and it now contributes 18 per cent of GDP, versus less than 10 per cent in the US, and about six per cent in the EU. About 14 per cent of all employees work in the tech sector and in tech jobs in other sectors. The Israeli economy relies on high-tech products and exports, which make up about 50 per cent of total exports, as well as taxes from the sector.
Among early-stage start-ups, difficulties in raising capital and a revenue plunge are the main problems, while later-stage tech firms are grappling mostly with a decline in employee performance and shortage of human capital to keep operations running smoothly, according to the survey.
Even before the outbreak of the war, Israeli tech companies were suffering from a severe plunge in investments of as much as 70 per cent, exacerbated by a global economic slowdown and the contentious judicial overhaul advanced by the government earlier this year.
“High-tech is the leading sector of the Israeli economy, and returning to growth as quickly as possible is not only vital – it’s absolutely necessary,” said Ori Gabai, CEO at the research and policy institute SNPI.
“Over the years, one of Israeli high tech’s strong points has been that it is based on the entrepreneurial culture, with hundreds of new start-ups established every year – but in a period of security-related and economic instability, start-ups are also the most vulnerable.”