Israeli high-tech companies will face their biggest test yet following the collapse of the Silicon Valley bank wiped out a major source of funding, while planned legal changes threaten the foundation of corporate law.
Israel’s economy has benefited from a wave of success in the technology sector, which employs just 10 percent of Israel’s workforce and accounts for regarding 15 percent of its economic output, more than half of exports and a quarter of tax revenues. But proposals by Prime Minister Benjamin Netanyahu’s far-right coalition that would give the government more power to choose judges and limit the Supreme Court’s power to overturn laws have spooked existing and potential investors.
“The high-tech sector needs stability, it needs the rules of the game to be clear, it needs certainty… that there are courts it can go to,” said Karent Flug, a former governor of the Bank of Israel (Central Bank) who is now vice president at the Israel Democracy Institute. Without that, investors will be reluctant to put money in.
Another potential risk is accelerating the brain drain. About 100,000 Israelis already live and work in Silicon Valley, California, and many more have moved to Europe. Government data indicates that there are currently regarding 6,000 vacancies in the technology sector, which includes regarding 400,000 jobs in total.
“This sector will take their minds, ideas and entrepreneurship, and some countries will roll out the red carpet for them,” Flug told the Israeli Council on Foreign Relations.
Several advanced technology companies, such as the American-Israeli cyber security company “Waze”, stated that they would withdraw their money from Israel and prevent funds from entering it if the proposed amendments were approved, while the head of the cloud software company “Nice” said that “major investors are following the situation carefully.”
Meanwhile, the Israeli shekel fell to its lowest level in three years once morest the dollar, due to expectations of a decline in foreign direct investment, following it recorded $15 billion last year and reached a record level of $27 billion in 2021.
According to the IVC Research Center and LumiTech, Israeli high-tech companies raised $1.7 billion in financing in the first quarter of the year, down 70 percent from $5.8 billion in the first three months of 2022 and marking a quarterly low. fundraising in four years.
Concerns are also growing in the tech sector, too, due to the collapse of the US bank Silicon Valley, which CEO of investment firm OurCrowd John Medved has described as a “sanctuary bank” for Israeli startups — a conglomerate of 7,000 companies, some valued at least $1 billion and some Small companies with no more than 50 employees.
Companies and venture capital investors reported that more than half of the start-up companies in Israel have accounts in Silicon Valley Bank, and for some of them these accounts were the only banking tool in the United States, but the volume of transactions is not known precisely.