Israel’s vast tech sector has seen its fair share of crises, from financial downturns and the Covid-19 pandemic to periodic flare-ups in the Israeli-Palestinian conflict. Each time, the industry has bounced back, demonstrating why the country of just 9 million people is known as the world’s “startup nation.”
But the war sparked by the Hamas assault last weekend that killed more than 1,300 people in Israel has upended daily life in a way that presents a unique challenge to the country’s most important industry.
Schools have been ordered to close, once-bustling streets in Tel Aviv, the center of business, have virtually emptied and many businesses remain shut. Some are closed for security reasons, but many simply cannot operate because their employees have been called up to military service.
“This is different than anything we’ve faced before,” said Avi Hasson, the CEO of Start-Up Nation Central (SNC), a non-profit that promotes Israel’s tech industry globally.
“I think it’s hard to find an Israeli that wasn’t personally impacted by what has happened. [There’s] a very high level of uncertainty right now on how this plays out,” he told CNN.
Tech is the single biggest sector of the Israeli economy. Sentiment had already taken a hit before the war broke out. Some tech executives said government plans to weaken the judiciary spooked investors, worsening a global slowdown in fundraising for startups.
The war’s most immediate impact on tech firms has come through the workforce. Israel has called up more than 300,000 military reservists to fight in the war, most of them working and studying in Israel, though some have returned from abroad.
SNC estimates that about 10% of tech employees in Israel have been drafted, with the number climbing as high as 30% in some companies.
Nasdaq-listed Monday.com (MNDY), a company headquartered in Tel Aviv that develops project management software, said about 6% of its workforce around the world had been called up.
“Being a global team we are really able to pick up and support each other and don’t anticipate any disruption to business,” head of communications Leah Walters told CNN.
Startups need cash
Israeli tech firms, accustomed to armed conflict, have “playbooks” in place to ensure they can continue operating even during a war, according to Yaron Samid, the managing partner of TechAviv, a network for tech company founders.
“The pandemic also equipped our companies and their employees with… work-from-home capabilities,” he added.
But certain activities vital to the tech ecosystem can’t be done remotely. At least three high-profile tech conferences due to take place this month have been canceled, including an artificial intelligence summit hosted by chipmaker Nvidia (NVDA), at which CEO Jensen Huang was to deliver a speech in person.
Tech executives who spoke to CNN said fundraising and dealmaking could also take a knock, as visits to the country come to an abrupt halt and investors wait to see how the situation unfolds.
“Over the next couple of weeks it’s going to be tough, especially for people like us who are raising money,” said Jon Medved, the CEO of OurCrowd, a major global venture investing platform based in Israel.
“The big challenge for a startup economy is making sure that the money keeps flowing because the vast majority of these startups are not profitable… they need ongoing investment,” he told CNN.
While venture capital (VC) funding for Israeli startups has fallen over the past two years — in line with global trends — the country remains one of the leading destinations for tech investment.
In 2021, Israeli startups raised a record-breaking $27 billion of VC investments — more than in the previous three years combined, according to the Israel Innovation Authority, a government agency.
Pledges of support
The tech industry accounts for 18% of Israel’s gross domestic product, about half the country’s exports and 30% of tax revenue, making its prosperity crucial to Israel’s economy.
Some in the industry think the war will ultimately strengthen the sector as it will likely draw support from investors keen to help the country rebuild.
“Seasoned investors with experience backing Israeli startups are not backing away due to the war,” said Samid of TechAviv. “On the contrary, they are being very supportive at this time, as they have in the past.”
As of Friday, a “Statement of Support” for Israeli startups, entrepreneurs and investors had attracted signatures from more than 500 VC funds from around the world.
“Israel has been an enduring partner to the global innovation ecosystem, fostering groundbreaking technological advancements and startup innovation,” the statement said, adding “it is now our time to step up to the plate and to support Israel and the Jewish people.”
Tech companies themselves have also rallied to the war effort, setting aside their beef with the government over planned judicial reforms to procure vital equipment for soldiers, locate missing individuals and offer expertise in areas such as AI and cyber security.
“The fact that we are unifying is extremely significant for the tech ecosystem,” said Hillel Fuld, a columnist and adviser to startups. “The country is more united than it’s been in a very long time.”
It’s an “all hands on deck situation,” added Hasson of SNC.
Some of the world’s biggest tech companies, such as Microsoft (MSFT) and Alphabet’s Google (GOOGL), are also stepping in to provide help, such as digital services to first responders.
For many in Israel’s tech industry, the devastating circumstances have only served to underscore the sector’s famed resilience. “Israeli [tech] hasn’t stopped,” Hasson noted.
“Customers are being served, code is being coded, new ideas are being formed… the engine is working. It’s very, very strong.”
