Since the start of the year, an eye-watering 186,020 big-tech employees from around 637 companies have been laid off. Across the global big-tech scene, sweeping layoffs have seen companies such as eta, Amazon, Google parent company, Alphabet, Netflix, and Lyft, among recent names cutting thousands of jobs since the year started.
Economic troubles that started early last year, when the U.S. Federal Reserve and Israeli government announced interest rate hikes, against the backdrop of soaring inflation and supply chain constraints have now spread to even the smallest startup companies, forcing many to make difficult cutbacks to stabilize their bottom line.
Although Israel remains a hub for smart tech innovators and startup entrepreneurs, the country’s tech scene witnessed roughly 8,000 employees seeing their jobs on the chopping block in 2022. So far this year, around 500 tech workers have already been let go, with some analysts predicting even harder times ahead for companies in the sector.
Changes to domestic judicial reform have not yet been met with widespread acceptance, as many industry leaders voice their concern that new policies could only further deepen economic problems for both tech companies and the industry as a whole.
With uncertainty looming up ahead, and the industry entering turbulent conditions right from the start of the year, perhaps there could be some upside in the coming months, despite private investors and venture capitalists pulling out from funding deals and startups having a hard time securing new financing deals.
Industry challenges are different in Israel
Compared to the rest of the world, Israel’s diverse economic activity and seemingly dynamic tech industry have meant that although several companies had to lay off some workers in recent months, there’s a chance that conditions won’t necessarily continue to falter further in the remainder of the year.
For starters, a majority of the country’s tech industry is made up of startups and smaller tech firms scattered among an array of different industry categories.
Earlier in the year, Eyal Solomon, CEO of Ethosia, a tech placement company, told the media that the recent uptick in tech layoffs is distinct when you start looking at how Israel’s tech sector is made up. The sector is dominated by startups, which make up nearly 85% of the local sector.
Smaller startups and companies that had to lay off employees in recent months were due to difficulty in raising capital and finding investment funds. The picture is painted differently for larger, publicly traded companies that have made severe cuts in recent months due to a decrease in consumer demand and investor interest.
On top of this, those employees that have found themselves without a job are generally categorized as junior employees, many of whom still have minimum experience in their respective fields.
The country’s dynamic marketplace has also meant that although layoffs and a steady decrease in funding have rattled the industry, business segments such as climate tech and the alternative protein sector have remained a stronghold for Israel’s broader tech industry.
During the last two years, the alternative protein business sector raised over $1 billion in investment funding, coming second only to the U.S.
Further research showed that between 2016 and 2022, the climate tech sector grew by 60%, with roughly 850 companies making up the fast-developing sector. In total, these companies raised around $3 billion in funding, with deals coming from both domestic and international investors.
Sectors that are directly aligned with environmental, social, and corporate governance are seeing ongoing growth as consumer and investor demand for transparency, and innovative market solutions are strong drivers of economic activity for the country’s tech industry.
New funding remains spread across the industry
Israeli high-tech companies witnessed a steep decline in funding during the first quarter of the year, as companies raised $1.72 billion through 105 deals. This marked a 70% decrease from the first quarter of 2022 and a further 79% fall from its peak in quarter four of 2021.
This number was significantly inflated by three major funding deals, which accounted for roughly 38% of the overall amount raised during the first quarter of the year.
Both the number and volume of deals have significantly decreased over the last several months, partially due to many investors holding off on deals until macroeconomic conditions have started improving.
There is however an upside to this, to some extent. In a report released earlier in April 2023 by the Amsterdam-based Dealroom.co data firm, and Tel Aviv Tech, a public initiative from the Tel Aviv Mayor’s office, Tel Aviv ranked third in the Europe-Middle East-Africa (EMEA) region for venture capital (VC) investment in 2022.
At the height of economic uncertainty last year, Tel Aviv, only falling behind London and Paris, remained a striking tech ecosystem for VC investors.
This doesn't come as a surprise to many either, as Tel Aviv’s tech bubble has skyrocketed in the last five or so years, with the total value of companies in the sector reaching $393 billion in 2022, up from the recorded $113 billion in 2018 according to the same report.
What’s more, the local ecosystem is one of the most valuable in the world and the EMEA region, only falling behind London, while being ahead of Singapore compared to Asian cities.
Again this funding is spread across a plethora of dynamic tech companies, with 19.2% of VC investment in Tel Aviv going to cybersecurity, healthcare, and medicine (10.7%) and fintech (5.6%).
There remain opportunities for other sectors in the local market, but the concentration of these businesses is spread across different categories, such as alternative protein, food and agritech, and climate tech companies.
A growing number of new opportunities
Despite the lack of available investments and funding, there remain a number of new opportunities for private tech companies amid the economic slump.
Recent data showed that new startups originating from academic institutions have grown by 120% throughout the last several years. Overall, these new startups accounted for 13% of the total new startups established in Israel in 2020. The data further revealed that startups with closer ties to academic establishments and universities have increased from 34 in 2016 to 75 in 2020.
Allowing universities to manage the intellectual property assets of researchers, and help transfer their knowledge from academia to business has helped bridge the gap between research and commercial or industrial products.
The transfer of these innovations has been met with great success over the last several years, allowing scientists a better opportunity to publish their work and help foster a collaborative spirit between academia and the tech industry.
The strong growth has meant that some industry big leagues now have offices on university campuses, host seminars for students and researchers, and further collaborate on innovative projects that could help uplift Israel’s tech industry onto the global stage.
The social dynamic of Israel’s big-tech industry has also been improving, as a report by Start-up Nation Policy Institute showed that the gender gap in startups is slowly narrowing.
According to the report, women now account for nearly 35% of all jobs, a slow, but noteworthy increase from the reported 33.4% in 2021.
Still, there is a need for increasing female representation in senior positions, with women only making up 16% of C-level or C-suite, 7% of chief technical officers, and 35% of chief marketing officer positions, according to the Start-Up Nation report.
Narrowing the gender divide in the corporate and startup ecosystem has been a tumultuous challenge, at best, but it seems as if these efforts are starting to begin to pay off.
More than this, some mobile applications, such as SafeUP, allow women to share their live location and contact members of the community if they are feeling unsafe when out in public. Smaller, and seemingly younger startups such as these are bringing the safety and well-being of women into a larger perspective.
Among these and other efforts, dynamic opportunities are presenting themselves to tech companies as they look to navigate the ongoing challenges in the year ahead.
Final thoughts
While Israel’s tech industry is shrouded in uncertainty, with political tension and macroeconomic problems tugging at the seams, it could be a challenging year for many big-tech companies and startups this year.
However, conditions may take several months before it can start improving again, there is some upside that Israel’s tech sector has remained resilient partially because it’s composed of dynamic sector leaders that are helping reshape the future of global tech leaders.
With a lot of uncertainty still on the books for the year, it’s possible that Israel and its diverse tech industry could come out clear on the other side, as other global players tread through difficult conditions.
Jacob Wolinsky lives with his wife and children in Passaic,New Jersey, and is the founder and CEO of ValueWalk financial media service. Before launching ValueWalk, he was an equity analyst at a micro-cap-focused private equity firm and then a small/mid-cap value-focused research shop. He also workedin business development for hedge funds.