Israel’s startup ecosystem has long been a powerhouse, contributing significantly to the country’s economy. However, the recent escalation of violence between Israelis and Hamas has had a profound impact on the startup community. With the country’s tech industry playing a crucial role in its economic growth, the ongoing conflict and its aftermath have posed immense challenges for startups and the larger technology sector.
Key Takeaway
The recent escalation of violence in Israel has significantly impacted the country’s startup ecosystem. While maintaining business operations presents numerous challenges, startups are striving to navigate through the turmoil. The commitment and resilience of Israeli entrepreneurs and investors will play a vital role in ensuring the continuity and future success of the startup ecosystem.
Small Country, Big Tech Impact
Israel, despite its small size, has a vibrant startup ecosystem. With 9,000 active startups, the country is ranked third in the world, following the Bay Area and NYC. These startups have generated a staggering $95 billion in venture capital over the past five years. Technology, as the leading sector, contributes more than 18% to Israel’s GDP, attracting major global tech companies like Intel, Microsoft, Nvidia, and Google.
However, the current conflict and the preceding protest movement against the government’s judicial reforms have put a strain on the startup ecosystem. Even before the recent violence, startup investment in Israel had already experienced a significant drop. Funding activity in the first half of 2022 decreased by 73% compared to the same period the previous year, according to data from IVC.
Startup Operations in Turbulent Times
Despite the challenges, Israeli startups are trying to navigate through the turmoil and ensure the economic viability of their businesses. Many founders and operators emphasize the importance of supporting their teams’ well-being while striving to maintain operations. This entails finding a delicate balance between employees who are eager to continue working to provide a sense of normalcy and those who are understandably unable to focus amid the ongoing conflict.
For example, Omer Davidi, CEO & co-founder of agritech startup BeeHero, highlights the need to focus on core company operations while awaiting a clearer understanding of the unfolding situation. Quantum Machines co-founder and CTO Yonatan Cohen acknowledges the initial difficulty in concentrating on work but notes that employees not called up for active duty are beginning to regain their focus.
Moreover, startups are not just confined to their internal operations. Many are actively participating in efforts to support the country during this challenging time. Startup denizens are volunteering to provide equipment, medical supplies, and food to communities affected by the conflict. Technical developers are also leveraging their skills to build technology solutions for logistics management and post-conflict recovery.
The Economy in a Time of Crisis
While the primary concern is the safety and well-being of citizens, startup founders and investors also recognize the importance of keeping these businesses running. Most Israeli startups have a global customer base and operate through go-to-market teams in the U.S., allowing them to continue operations despite the war. However, the ongoing conflict might slow down product development, while the impact on sales in the short run remains uncertain.
Ensuring the continuity of business operations and maintaining communication with customers are crucial for Israeli startups to preserve their customer relationships. Sharon Seeman, a partner at venture capital firm YL Ventures, emphasizes that startups must navigate these difficult conditions to sustain their business operations.
Looking Ahead
As the conflict persists, the ability of Israeli startups to raise funding and scale their operations may be impacted. Potential startup investors and their limited partners (LPs) might be hesitant to invest in a region and country marred by war. However, many investors are determined to support Israeli startups through these difficult times. They are committed to ensuring that the startups in their portfolios survive and thrive.
