A year of war: How has the Start-Up Nation's hi-tech sector been impacted? - experts

As Israelis marked a year of war this week, members of Israel's hi-tech ecosystem weighed in, sharing with The Jerusalem Post their experiences as the sector has been affected by the sweeping impacts of the Israel-Hamas War.

The war, along with other factors, has created a downturn in fundraising, according to Arik Faingold, who is the chairman of Commit and co-founder of Pentera.

"There have been three main factors impacting capital raising in Israel," he explained - the war, earlier concerns about judicial reform, and the decline in NASDAQ valuations.

"While we're seeing a global downturn in fundraising, Israel is experiencing a more significant decline due to war-related instability," Faingold added.

"This has been further compounded by recent credit rating downgrades, which have affected global funds' willingness to invest in the Israeli market overall."

Strategic Partnerships Manager at UST Spark Maayan Shahar agreed that the war has impacted Israeli companies' ability to raise capital.

Israeli startups face capital challenges

"This past year has undoubtedly made it harder for Israeli startups to raise capital, with both the geopolitical uncertainty and global market shifts playing a big role," she said, adding that in spite of this, innovation is still "very much alive."

Mine co-founder and CEO Gal Ringel explained some of what is causing this impact, saying that investors aim to reduce risk and that the war in Israel presents "another risk that adds a lot of uncertainty that is hard to predict."

"In other words, given the situation in Israel, if there is a US-based startup vs an Israeli one,

and all metrics look the same, an investor might choose to invest in the United States one. Increasing risk means less investments," Ringel explained.

Sompo Digital Lab Tel Aviv CEO Yinnon Dolev presented another perspective, saying that different sectors within hi-tech were impacted differently.

"The cyber industry has barely been impacted in that startups were able to raise capital, and deals were signed," he said.

"In contrast, quite a few Israeli funds experienced difficulties in raising capital since the risk 

premium for investment in Israel has grown, and competition from funds outside Israel, such as Europe, is growing," Dolev explained.

Dolev also commented on the impacts of the war and of more global tech market conditions on the foundation of new Israeli companies, saying that "many new Israeli startups have incorporated themselves in other countries, registering as non-Israelis, and many startups have had difficulties in raising capital and lowered valuations."

Faingold also commented on this impact, saying that "many potential entrepreneurs are currently serving in the military reserves, and the Israeli mindset is more focused on survival than creativity at the moment. We're seeing a significant drop in the establishment of new startups in Israel."

"The current environment makes it more daunting to start a new company, as entrepreneurs see the decreased fundraising opportunities and reduced investor interest in Israel, making them hesitant to take the plunge into these deep waters," he added.

This is, however, accompanied by increased innovation in defense technology, he added. "This trend is fuelled by the immediate need to bolster Israel's homeland security, along with the growing global demand for defense technologies in an increasingly uncertain world," he explained.

The mobilization of reservists has "shaken things up in the hi-tech workforce, leading to some short-term productivity challenges," Shahar said, touching on another impact of the war on the sector.

Dolev also commented on this impact, saying that "a significant portion of tech employees are reservists. Quite a few startups we are working with reported 10-15% of their workforce in reserve duty."

Faingold said that the reserves call-up had an impact and that workers worked hard to cover for each other. "Despite the challenges, companies successfully met their commitments, driven by a strong belief in mutual responsibility," he said

Ringel explained that different companies were impacted differently by the call-up. "For early-stage companies (seed phase), whose 100% of their personnel are in Israel, it might be challenging and even kill the company. There is no substantial impact for a later stage since most of their GTM teams are already outside of Israel," he said.

Companies can contend with this by implementing redundancy and hiring or moving workers outside of Israel, Ringel suggested.