A few days into Israel’s war with Hamas in Gaza, a number of local high-tech companies announced they managed to clinch respectable sums in fundraising campaigns.
It seemed unbelievable that Israeli companies are raising money despite an unprecedented war. Indeed, most of the announcements were misleading because they reflected the closing of funding rounds that were opened months before the war.
But according to expert estimates, the tech sector should be able to make it through the security crisis in reasonably good shape.
Investors don’t like uncertainty
“This crisis finds the [high-tech] ecosystem strong after three years of big investments,” Yariv Lotan, VP product, development and data at Start-Up Nation Central, tells ISRAEL21c.
“But, on the other hand, it comes after a year of a consistent drop in investments, partly due to global inflation.”
Lotan says the current war is “a situation the ecosystem has never encountered before ”since it is not similar to any recent Israeli wars or operations.
“Investors don’t like uncertainty,” he says.
“There are quite a few companies with a significant percentage of their workforce away on reserve duty; some workers are unavailable due to war-related mental health issues, or simply have to take care of the household while their partners are away.”
According to the latest Start-Up Nation survey, 40 percent of the companies surveyed said 30% or more of their employees were unavailable, including founders in some cases.
Lotan adds the shortage of workers is more painful for young startups and it’s inevitable that some may not weather this storm.
“The main challenge is raising money in these complicated times,” says Lotan.
Lotan notes that several emergency funds have already been established to help emerging startups survive the tumultuous period of war.
“Money is still being raised, but naturally at a lesser scale,” Lotan says.
“The most important thing for investors is to see how companies’ operations are affected. If they see that the business is not that affected, it would be easier to invest.”
Lotan says the potential of a company to raise money in these trying times is determined by its stability and its clientele, rather than by the industry it specializes in, like health or defense.
“Israeli companies offer solutions to global problems. No industry [within high-tech] will be wiped out because of the war. If the company is managed correctly, the problems needing solutions will still be there after the war is over.”
The engine is running
Start-Up Nation’s Director Global Communications & Brand Estie Rosen says that despite all the drawbacks, “the engine of the high-tech sector is running.”
Rosen says Israel’s high-tech is unique in its flexibility. “I recently talked to a CEO of a unicorn [a privately held startup company valued at over $1 billion], and he said he now employs a 50-strong team in Ukraine to compensate for absent employees,” she notes.
“The big companies have mobilized to offer help. There are technology volunteers who are willing to cover for absent workers — there is a lot of mutual help,” adds Lotan.
“If we compare it to what happened after Operation Protective Edge [a 50-day war between Israel and terror factions in Gaza in 2014], the high-tech sector rebounded in the next financial quarter,” he notes.
“This ecosystem is very cohesive and agile, and knows how to adapt. The current problems will resolve themselves eventually.”
Lotan adds that high-tech companies are evolving due to the war, adapting their technology to defensive needs and even developing new technologies.
“It may have defensive use now, but the same product can have a civil use in the future,” he says.