Israel's tech hub is a crucial part of its economy. Now, startups could face tougher funding rounds amid the war, experts say.
- Getting overseas funding could become difficult for Israel's tech industry amid the war, experts told Reuters.
- Tech accounts for 14% of jobs in Israel and generates about one-fifth of the country's GDP.
Israel's tech startups have already been facing a tough year attracting funding amid the implosion of a major lender for start-ups, global recession fears, and rising borrowing rates.
And now, it may get harder for companies to attract funding — at least for a few months, according to experts.
The tech sector is a vital part of Israel's economy — it accounts for 14% of jobs in the country and generates about one-fifth of the country's $525 billion GDP in 2022.
It is also home to a large number of startups, earning the tech hub near Tel Aviv the nickname "Silicon Wadi" — a play on Silicon Valley.
"Overseas investment will slow for the next couple of weeks and months, especially to the extent that there are still hostilities going on," Jon Medved, the CEO of OurCrowd, one of Israel's largest venture capital firms, told Reuters on Tuesday.
"Certainly, while we are in the midst of the war, it's hard to imagine major deals happening," Avi Hasson, a former venture capitalist and the CEO of non-profit Startup Nation Central, told Reuters.
More immediately, tech companies are sorting out their operations as staff are being called up for the war.
Investment in Israel's tech startups has already been falling for seven straight quarters even before the war started, according to a report by the think tank Startup Nation Policy Institute, released on September 30.
Tech investment in Israel fell to $5.6 billion in the first nine months of this year — 62% lower than the $14.7 billion in the same period in 2022, according to the think tank. This drop is far steeper than the 43% decline in the US and a 48% fall in Europe.
"A large part of the decline in Israeli investment is most likely due to the global slowdown. However, declines in Israel between 2022 and 2023 were sharper, likely caused by the political instability," the institute's analysts wrote.
Despite the uncertainty, some US tech investors have pledged support for Israel.
New York-based venture capital fund Insight Partners has pledged to donate $1 million to charitable organizations in Israel and will match up to another $1 million in donations. General Catalyst, another VC firm, also pledged $250,000 for humanitarian efforts on the ground.
Tech insiders also express optimism for the industry, citing Israel's reputation as an established tech hub.
"Israeli tech has earned the confidence of investors in terms of being able to function during conflict and also recover from it," Hasson told Reuters. "So, I don't see investors losing faith in Israel so quickly."