Israel’s tech sector comes to a grinding halt, workers, founders return as reservists to the battlefield

Israel has one of the most thriving start-up ecosystems, especially when it comes to technology. However, the recent developments around the Israel-Palestine war has brought the nation’s tech sector, as well as the startup ecosystem to a grinding halt, as per a Financial Times report.

In the face of mounting tensions and the looming possibility of a ground offensive in Gaza, Israel’s tech industry often hailed as the “Start-Up Nation,” finds itself confronted with an unprecedented challenge. Key players within the Israeli tech landscape have voiced concerns about the potential ramifications of a prolonged conflict on their operations.

Israeli tech founders and investors estimate that a significant portion, ranging from 10% to 15%, of their workforce, is comprised of the 360,000 reservists now called up for duty, causing a sudden and substantial disruption, especially for smaller tech companies.

The tech sector plays a pivotal role in Israel’s economy, accounting for approximately 15% of all jobs, as reported by the Israeli Innovation Authority. This dynamic workforce is dispersed across hundreds of start-ups and major offices of global giants like Intel and Microsoft, making it a vital contributor to the nation’s economic success.

Despite the global industry slowdown, Israel managed to secure $5.5 billion in total venture capital through 320 deals in 2023, attracting foreign investments, according to market researcher IVC. However, these investors, often seeking stability, may now face a dilemma when considering continued investments in the country during a protracted conflict.

In a stark illustration of the situation, Or Bokobza, the CEO of Venn, a residential software start-up, and a reserve member of an elite Israeli military unit, has been deployed in the field following a surprise attack by the Palestinian militant group Hamas. Bokobza and around ten of his colleagues, part of the 90-strong company, have been drafted into the nation’s large-scale mobilization for war.

Dovi Frances, a founding partner of venture firm Group 11, shared that several top executives in his portfolio companies are currently fulfilling their reserve duties. Nevertheless, industry leaders, including Frances, have indicated their readiness to adapt to the situation, as the prospect of war has long been a reality in Israel.

Yevgeny Dibrov, the CEO of the cybersecurity start-up Armis, has had to address the departure of 20 of his staff members. The eight-year-old company, with 660 employees, has swiftly transitioned to a crisis mode, reorganizing its operations, having its remaining Israel-based staff work from home, and providing psychological support for employees impacted by the recent attack.

Executives have highlighted that many Israeli start-ups have their top executives, marketing, and sales teams based in the United States, a strategy that offers some business continuity during times of crisis. Shmuel Chafets, chair of the venture capital group Target Global, noted this adaptability as one of the strengths of the Israeli tech ecosystem.

Furthermore, some tech start-ups have shifted their focus to contribute to the war effort, utilizing their technological expertise. Israel’s world-class cybersecurity sector, rooted in its military and intelligence services, is playing a crucial role in enhancing the nation’s security measures.

Nadav Zafrir, former commander of Israel’s elite signals intelligence unit 8200 and managing partner at the Team8 venture group, revealed that his company is harnessing various technologies, including data science, to support the government’s efforts to locate Israeli hostages.

Large technology companies are also closely monitoring the situation. Intel, one of the biggest multinational corporations in Israel with 13,000 employees, has stated that it is “closely monitoring the situation in Israel and taking steps to safeguard and support our workers.”

In a show of solidarity, over 300 venture capital firms have signed a statement of support for Israel, acknowledging the nation’s contribution to the global innovation ecosystem. Prominent American groups like Bessemer Venture Partners, GGV Capital, and Insight Partners, many of which have invested in Israeli companies over the years, have endorsed the statement. Additionally, firms such as Sequoia Capital and General Catalyst have announced donations in a demonstration of their support.

Start-up executives emphasize that, regardless of the impact on their companies, Israel’s war effort remains the top priority. Dovi Frances of Group 11 mentioned that his company is organizing various donations, including funds, food, equipment, flights for reservists abroad, and even a shipment of 50,000 bags of coffee to the frontlines.

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