By Sara Miller, NoCamels -
It has been exactly four months since Israel declared war on the Hamas terrorist organization that ruled in Gaza; four months since Hamas terrorists stormed across the border and rampaged through southern Israel on October 8, 2023, killing more than 1,200 people and taking hundreds hostage.
The immediate mass call-up of hundreds of thousands of reservist soldiers in the Israel Defense Forces (sometimes referred to as “the people’s army”) saw the entire Israeli workforce vastly depleted practically overnight. And the high-tech sector, with its plethora of former specialist intelligence soldiers, did not escape this depletion unscathed.
Speaking at the start of the war, industry experts were nonetheless optimistic, confident that the sector would survive and subsequently rebound, and that investors would not fall away.
And four months later, that optimism seems to have been borne out.
The January 2024 report by Startup Nation Central, a Tel Aviv-based nonprofit that drives and facilitates Israeli innovation, found that the sector had maintained its famous resilience and dynamic nature despite the ongoing conflict, and had actually managed to remain what the report calls “the economic anchor of Israel.”
Sector veteran Dr. Merav Galili tells NoCamels that that resilience can definitely be seen in the startups her organization works with.
Galili is the CEO of the Menomadin Foundation, an Israel-based international impact fund to promote innovative solutions to sustainable development challenges in Israel and Africa. She is also the former vice president for development at Bar-Ilan University.
“If you have a startup and this startup now has 50 to 80 percent of their staff on reserves, you would think that the outcomes would be lower as their performance would be lower; you would think that their clients in America would be disappointed by the way they are performing,” she says.
“But what a surprise – none of our companies are performing lower than they did before the war; none of them have lost clients because of the war.”
She does clarify that two of the companies on Menomadin’s roster have lost foreign backers because of the war, but says that this was due to the fact that they were both new investment funds, accountable to their own investors, who felt that wartime was not the optimum period to take a chance on Israeli startups.
But Moti Elkaim, an Israeli business strategist whose NY-based company Atlantic Brands helps Israeli startups break into the US market, strikes a more confident note about foreign investment.
The funding is still there, he tells NoCamels, if company and investor are a good fit.
“There is still investment in the market,” he says. “Because at the end of the day, especially in the early stage startups, what investors are really looking for is the right founder.”
Marketing guru Sharon Israel tells NoCamels that the local startups have been very up front with their clients about the situation and any difficulties they were experiencing.
“Most Israeli companies that I worked with were smart enough to be frank about [the situation] with their customers, and not just say ‘everything’s okay’,” says Sharon, the CEO and founder of the Xtra Mile marketing agency, which helps companies in the tech sector engage, develop and advance.
And she too says that the sector has weathered the storm robustly and adapted swiftly to a suddenly altered situation.
“Most of the strong tech companies are handling it right,” she says. “They’ve already reached the point where they made adjustments. And now they’re kind of adjusting to the new realities – smaller teams, smaller companies, smaller budgets.”
Galili also points out that because – at least for now – many reserve soldiers have been released from duty and are back in their companies, the sector responsible for 18 percent of Israel’s annual GDP has found some stability.
“It’s easier when the CEO is in office, six days a week, back to back,” she says. “It’s not like when he’s in Gaza.”
Israel and Galili both decided their organizations would pitch in to help the companies in their respective portfolios as much as they could, taking on a deeper advisory role. In Galili’s case, this even means providing funding for the two companies who lost investors.
“We have stepped in where we didn’t plan to do investments at this stage,” she says.
“During the war, we have increased the amount of time and quality of work that we’re doing with [our companies], to make sure that they come out healthy and robust and stable from this very shaky period of time.”
And Sharon and Galili are not the only ones working to shore up the industry in wartime, with the expectation of better days to come.
The Israel Innovation Authority, the branch of the government dedicated to promoting the national high-tech sector, has created a fund of 400 million shekels (approx. $110 million) to provide vital support to startups facing financial insecurity due to the conflict.
OurCrowd, Israel’s largest online investment platform, launched its Israel Resilience Fund, aiming to support up to 50 tech companies directly impacted by the conflict, by securing collective investments of $50 million.
The first $13 million of that target has already been reached and the first eight companies earmarked for investment have already been chosen.
The platform’s faith in the Israeli tech sector is explained by OurCrowd founder Jon Medved, who in late October told NoCamels that local companies are “really adept at managing through crises of various sorts.”
Elkaim also credits the sector’s durability with its ability to retain and attract new funding for local startups.
“The uniqueness of the Israeli founders in the Israeli startups is in the resilience,” he says. “That is a key ingredient that is so important for investors. And what we’re seeing now is that resilience became the new traction.”
Startup Nation, too, is “cautious but optimistic” regarding the sector in the coming year.
“We hope the ecosystem’s bedrock of innovation, global partnership, and proven resilience will steer it through uncertainty toward a continued growth trajectory,” said its CEO Avi Hasson.
And just as in October, sector experts believe that the war will lead to a wave of new technological developments and advancement in Israel – borne out of the need for creativity in conflict.
“Because of the war, we are going to see an increase in innovation and technological solutions that are looking at security issues,” explains Galili.
“Security issues can vary from companies looking at very heavy capital expenditures, like drones and all kinds of physical solutions, to crazy technological cyber solutions, which are more like a Saas [software as a service] solution.”
Sharon Israel also says that many cyber companies have been “drafted” into helping to build new solutions for the army against cyberattacks.
“Almost everyone is supporting the country in some way, volunteering for this or that project, and giving out their expertise,” she says.
“That’s something that gives us a lot of strength and I’m very happy to say that I saw a lot of that going on.”
