Israeli Tech Experts Discuss How the Country’s Recent Upheavals Are Affecting it

October 11, 2023

Israeli Tech Experts Discuss How the Country’s Recent Upheavals Are Affecting it. In April, we discussed how Israel experienced significant changes in its judiciary system proposed by the government led by Benjamin Netanyahu. These reforms were recently passed. Many are concerned that these changes might restrict the judiciary’s 75-year history of independence from the government, depending on the ruling political party.

Critics of Netanyahu argue that these alterations could weaken essential checks on the executive’s power and potentially be misused. Supporters, on the other hand, believe that these reforms will address what they see as excessive judicial authority.

Israeli Tech Experts Discuss How the Country’s Recent Upheavals Are Affecting it

Yesterday, Israel’s parliament passed the initial bill after compromise attempts failed, and opposition parties staged a protest walkout.

For weeks, there have been ongoing public demonstrations against the amendment. The protests escalated yesterday as police removed demonstrators from the parliament. Thousands of people participated in street protests nationwide, causing highway blockages. The opposition and various groups intend to challenge the law in the Supreme Court.

How will Israel’s “Startup Nation” reputation be affected? Is one of the world’s most innovative tech ecosystems facing a threat due to political unrest?

It’s likely too soon to predict the long-term consequences, but there are indications that tech companies are swiftly taking measures to minimize the impact on their operations.

Just before this week’s parliamentary vote, the nonprofit organization Start-Up Nation Central conducted a survey of participants in Israel’s venture and hi-tech market.

The survey revealed that 22% of companies had already diversified their cash reserves outside of Israel, and 37% of investors mentioned that their portfolio companies had moved some reserves overseas. About 8% of companies reported they had initiated the process of relocating their headquarters, with 29% expressing intentions to do so soon.

What’s even more significant is that nearly 70% of Israeli investors stated that their portfolio companies planned to relocate their headquarters and register in another country in the future.

The uncertainty resulting from the judicial “reforms” has also led to staff layoffs, with almost half of the respondents indicating that they had already laid off between 10% and 30% of their employees. Additionally, just over 20% of companies are considering relocating their employees away from Israel.

Comments from Experts on Isreal

Some comments were requested from entrepreneurs, investors, and ecosystem participants in Israel. Here are their thoughts:

Eynat Guez, CEO and Co-founder of Papaya Global

He believes that the tech industry is returning to the early 2000s when Israeli tech founders had to move to the US to secure funding, establish their companies there, and expand with some R&D operations in Israel.

This trend is already in motion. Tech engineers are departing, with some choosing temporary destinations like Greece and Cyprus, while others are leaving for good, heading to Europe, the UK, Portugal, Spain, and the US. The recent events have become too burdensome for them to endure—excessive living costs, heavy taxation, and a government that allocates minimal resources to essential infrastructure like transportation and education.

Another concern is that we’ll witness more established companies shutting down, particularly if they aren’t performing exceptionally well and are based in Israel. The risk level for investors has simply become too high, potentially causing them to miss out on opportunities for additional funding.

Roi Carthy, CMO at LIQUIDITY Group

He points out that the so-called “reforms” are already causing significant harm to the Israeli startup industry. Many new startups are choosing to register as American companies along with their intellectual property (IP).

Investments have also declined. Most importantly, the local talent, which is a vital element of the “Startup Nation,” is witnessing a growing number of individuals considering relocation in the short, medium, and long term. Many of us can’t envision raising our children here under a non-democratic regime and messianic economic policies.

Hillel Fuld, a Startup Marketing Advisor

He emphasizes the importance of distinguishing between short-term and long-term effects. In the short term, there is already a clear impact on Israeli tech. The Shekel has depreciated, Israeli investors are becoming more cautious in their operations, and global investors are showing hesitancy in investing capital in Israel.

In my view, as someone not in favor of the current reform format, this situation is a self-fulfilling prophecy. Protesters continuously claim that this reform will turn Israel into a dictatorship, which is baseless and absurd. They assert that it’s the end of Israel, which it is not.

Hence, it’s not surprising that investors are exercising caution with Israel. These protesters predict an economic crash, contributing to its occurrence.

Frequently Asked Questions

Are There Any Positive Signs Amidst These Challenges?

Yes, there are positive signs, such as tech companies adapting quickly to mitigate the impact and a belief that Israel will remain a strong player in the global tech ecosystem over the long run.

What is the Long Term Outlook for Israel’s Tech Industry?

While short-term challenges exist, some experts believe that in the long term, Israel’s tech sector will rebound, potentially with increased investments, successful startups, and continued innovation.

Are Israeli Tech Companies Moving Their Operations Elsewhere?

Yes, some Israeli tech companies are diversifying their operations and relocating headquarters to other countries, citing factors like cost of living, taxation, and regulatory changes.

Israeli Tech Experts Discuss How the Country’s Recent Upheavals Are Affecting it