Israeli Tech Sector Slump Fueled By Economic Uncertainty, Data Shows

Hundreds of Israeli workers were laid off in recent weeks and investments have dropped amid global economic uncertainty.

According to figures shared by the Start-Up Nation Policy Institute (SPNI) with The Media Line, some $10.4 billion was invested into Israeli start-ups in the first half of 2022, a significant decrease from the $13.2 billion invested during the same period a year prior.

Financing rounds are also on a downward slope. In the first half of 2022, start-ups went through 404 investment rounds, compared to 551 for the same period last year and 491 for the first half of 2020.

“By and large we’re definitely seeing a slowdown in economic activity,” Uri Gabai, CEO of the SNPI and former co-general manager of Start-Up Nation Central, told The Media Line. “I think it’s natural after 18 months of very vibrant activity in the global tech market, including the Israeli tech market, that [people] will sit and wait and see how this rolls out.”

The phenomenon is not limited to Israel. Tech giants Netflix and Tesla have already slashed hundreds of workers, while Meta announced that it was implementing a hiring freeze for certain roles.

Since the Israeli ecosystem is highly connected to its American counterpart, the same negative trend has made its way across the ocean. If the economic situation deteriorates further in the US it will greatly impact the Israeli tech sector as well, Gabai warned.

“For now, we’ve been hit less hard,” he said. “We’re definitely seeing some companies freezing recruiting, but our theory is that it will evolve into companies reducing revenues. If we get into a recession, then B2C (business-to-consumer) companies will probably be more at risk; B2B (business to business) companies are usually more stable in that sense.”

The slump is still in its early phases so investors and tech firms will need to hold tight to determine exactly how serious it is.

“We know of a couple of dozen companies with layoffs and probably the same number that are freezing recruiting,” Gabai noted. “The uncertainty could turn into a lengthy slowdown and even a recession. Obviously, this would affect companies and individuals, but we’re not there yet.”

On the bright side, Gabai related that investors are continuing to flock to Israeli start-ups despite jittery markets. He also believes that any current setbacks are temporary.

“We should not forget the fundamentals: The world is going more and more into digital and online [arenas],” he asserted. “This was accelerated by the COVID-19 pandemic, and it will continue for the foreseeable future, which means that good tech products and services will always find good investment and talent that will want to move there.”