The high-tech industry, which has been a cornerstone of Israel’s economy, contributing over 40% of GDP growth from 2018-2023 and representing 53% of its exports, is now navigating through a period of adjustment and uncertainty.
The judicial reform, a VC pullback and now the War uncertainty are creating challenges for the sector. A new report from the Israel Innovation Authority paints the current state of Israeli high tech in 2024. The
The main takeaways are:
- High-tech has been central to Israel’s economic growth (53% of the export), but is at a crossroads due to global economic trends and recent challenges in Israel, including the War.
- 2023 saw only 600 new companies created, a 55% decrease in VC funding, and a return to 2018 levels. Early stage rounds were most impacted.
- To keep the sector thriving, government policies should focus on restoring confidence in Israel as an attractive tech investment hub, especially around foreign investments.
- Continued investment in quality STEM education across all demographics is key for long-term growth
There is quite a lot of data to unpack, so for ease of navigation I split into the high level takeaways per section.
Economic Contribution and Challenges
The high-tech sector remains a critical driver of Israel’s economic growth, responsible for 53% of exports and one-fifth of the country’s GDP, tripling in size since 1995.
An overall examination of the entire period between 2018-2023 reveals that, cumulatively, high-tech is responsible for over 40% of the growth in Israeli GDP.
Despite its significance, the sector experienced declines in several indices, including total funding raised by startups, available jobs, number of IPOs, and new development centres.
Total Funding Raised and Number of Funding Rounds
The data reveals a significant decline in total funding and the number of funding rounds since the peak in 2021. The trend indicates a return to 2018 levels, reflecting the global downturn in investments.
After a decade of growth, investments in Israeli startups declined in 2022, but stabilised in 2023 and 2024 at levels similar to 2018-2019, with a notable billion-dollar deal by Wiz in May 2024, despite a continued decrease in the number of funding rounds.
Consistent with the global VC pullback in 2023, investments were down in Israel, but the impact was greater than other leading tech hubs.
Diversity and Employment
Approximately 396,000 people were employed in the high-tech sector in 2023, an increase of 10,000 compared to the previous year.
There is a notable lack of demographic diversity in the sector, with underrepresentation of Ultra-Orthodox and Arab populations.
Impact of Recent Events
In a survey conducted by the Innovation Authority in March and April 2024, 500 senior executives in Israeli high-tech companies were asked to describe how the war had impacted their company’s plans for2024.
Delays can of course be expected when some companies had 20-25% of their workforce in reserve duty, but another significant impact has been on fundraising capabilities. Several startups reported that funding rounds that were already underway during this period had been canceled or suspended due to the war. Part of the difficulty in fundraising started before October 7, in the wake of the proposed judicial reform (which has since been shelved).
Future Outlook
From my point of view as venture capitalist, investing in Israeli pre-seed startups, it’s vital to focus on supporting the tech sectors and making sure the engine of growth, the creation of new Israeli startups, continues.
To maintain growth, it is crucial to ensure a stable economic policy and increase the flow of investment to both funds and startups.
In the short term policymakers need to address unlocking funding to both companies and funds, which is trying to do with Yozma 2.0 and various IIA grants for incubators and angels.
In the long term, a strong education system is key for ensuring a steady pipeline of talent. Increasing the diversity in the tech sector, by training more haredi, arabs and women to enter the sector should also be a goal.
The Israeli high-tech sector stands at a critical crossroads. Its future success hinges on strategic investments, inclusive growth policies, and maintaining its reputation as a global innovation hub. While we’re currently at a crossroads, I’m a firm believer in the potential of Israeli entrepreneurs to create world class innovation and the current period, however challenging, is a testament that Israeli entrepreneurs deliver #NoMatterWhat.
Link to the full report can be found here: https://innovationisrael.org.il/en/wp-content/uploads/sites/3/2024/06/2024-Annual-Report-The-State-of-High-Tech-1.pdf
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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