One in five Israeli tech firms moved some operations and staff abroad during war

Israel Innovation Authority survey finds that about 50% of startups and tech firms may run out of funds within 6 months, as they grapple with flight suspensions and staff shortages

Sharon Wrobel is a tech reporter for The Times of Israel.

An illustrative image of program developers, startups and innovation (scyther5; iStock by Getty Images)
An illustrative image of program developers, startups and innovation (scyther5; iStock by Getty Images)

One in five Israeli tech companies and startups moved part of their operations and personnel overseas in recent months as foreign airlines’ halt of service to Israel during the war made it difficult for them to do business and raise capital. Meanwhile, at least 50 percent say they are running out of funds in less than six months, according to a survey by the Israel Innovation Authority.

The survey, conducted among a sample of 664 tech executives in November, after the US elections and before the ceasefires reached with Lebanon and the Hamas terror group in Gaza, showed that attracting and obtaining critical financing continued to be the most pressing challenge during the war, in addition to grappling with operational disruptions caused by prolonged military reserve duty, flight cancellations, and global investors’ caution.

“We see companies struggling not only with capital raising and meeting development and sales targets but also with their very ability to operate in an environment deeply affected by the security situation, massive military reserve call-ups, and flight restrictions that complicate the management of global relationships,” said Israel Innovation Authority CEO Dror Bin.

“The entire ecosystem – government, investors, and companies – must come together to ensure the future of this industry, which is not only a critical growth engine but also a symbol of Israel’s innovation and leadership on the international stage.”

Bin warned the government that now is “no time for compromises.”

“We must seize this crisis as an opportunity to build stronger infrastructure, improve the business environment, and increase investment in growing companies to ensure that Israeli high-tech returns to rapid growth and prosperity,” he urged.

The Israeli economy’s dependence on the tech sector has significantly grown in the past decade, and it now contributes almost 20% of GDP, versus less than 10% in the US, and about 6% in the EU. About 14% of all employees work in the tech sector and in tech jobs in other sectors. High-tech products and exports make up about 50% of total exports.

Israeli reserve soldiers train with their unit in urban warfare in northern Golan Heights, on March 27, 2024. (Michael Giladi/Flash90)

The survey among founders of startups and tech companies by the Israel Innovation Authority, in charge of directing the nation’s tech policies, found that local firms in November were recruiting foreign employees or agents, relocating staff abroad, and setting up offices overseas.

Foreign air travel has been repeatedly suspended during the war with Hamas, which broke out following the terror group’s October 7, 2023, onslaught. In recent months, US airlines have completely stopped flying to and from Israel amid heightened fighting between Israel and Hezbollah in southern Lebanon.

Almost 75% of the surveyed tech startups and firms reported that flight suspensions and limited foreign travel options hindered their ability to conduct business and raise funds overseas. As a result, 80% of the surveyed tech companies said they needed to raise capital within the next six months, which the IAA said was an “alarming” figure.

In the years 2021 and 2022 about 80% of venture capital investments in local tech startups were generated from foreign funds.

Thousands of tech workers and startup founders have been drafted to the army for prolonged periods since October 7, 2023, when Hamas terrorists burst into southern Israel from the Gaza Strip and killed 1,200 people, and abducted 251.

About one-third of the surveyed startups and tech companies reported that the repeated military call-up and absence of employees for long periods affected their daily operations, leading to delays in product development and an inability to meet deadlines.

Team works on a high-tech project (Photo credit: Nati Shohat/Flash90)
For illustration: A team works on a high-tech project (Nati Shohat/Flash90)

Looking ahead to the coming months, 70% of the surveyed companies said they were cautiously optimistic about sales growth, and almost half expect employment growth in Israel and abroad, as they continue to adapt to the challenging environment, including through cost-cutting measures.

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