Israel’s tech companies are resisting Netanyahu or leaving the startup nation.

Israel's tech companies are resisting Netanyahu or leaving the startup nation.

Israel’s Tech Industry Faces a Fork in the Road

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Israel’s tech industry has long been hailed as the “Startup Nation,” with companies like Wix and Wiz leading the way in innovation and success. However, the country’s political crisis and controversial judicial reform bill have created a divide among tech companies. While some, like Wix, are doubling down on their commitment to Israel, others, like Wiz, are distancing themselves from their home country.

The political crisis began seven months ago when Prime Minister Benjamin Netanyahu introduced a bill aimed at weakening the powers of the country’s supreme court. Supporters argue that it is necessary to prevent the court from intervening in politics, while critics fear it will erode democracy and concentrate power in the hands of the government. Despite massive protests, the bill has advanced, leading to widespread concern among tech workers and executives.

Tech companies have been actively involved in the protests against the judicial reform bill. Merav Bahat, CEO of cyber security company Dazz, supports employees who have taken time off work to strike or attend protests. Data from Start-Up Nation Central shows that almost 70 percent of Israeli startups are taking measures to distance themselves from the country, either by withdrawing cash or moving their legal headquarters overseas.

However, not all companies are choosing to leave. Wix, for example, has decided to stay and fight for what it believes is right. Co-founder and Chief Operations Officer, Nir Zohar, expressed concerns about the impact of the judicial reform on the talent that populates the tech industry. Wix employees even joined a general strike to protest the outcome of the vote.

The decision to stay in Israel is becoming increasingly rare. Reports indicate that more than 50 percent of new companies established in March 2023 were incorporated as foreign companies, instead of Israeli ones. This trend raises concerns about decreased tax revenue for the government, as the tech sector currently contributes over 50 percent of all exports and generates 50 billion shekels ($13.5 billion) annually.

Wiz, the cybersecurity company, is among those distancing themselves from Israel. While the company has “Israeli roots,” it has historically operated as a US-based company, with offices in both New York and Tel Aviv. In February, Wiz withdrew tens of millions of dollars from Israel and announced that none of its raised funds would be invested in the country due to uncertainty about the independence of institutions.

Founders such as Eynat Guez, CEO of payroll business Papaya Global, have been vocal in their criticism of the bill and the Netanyahu government. Guez recently wrote an open letter to investors, stating that Israeli entrepreneurs would now set up entities abroad due to the risk posed by the judicial system. She also revealed that Papaya Global has moved all its funds out of Israel.

The consequences of the political crisis and judicial reform bill are already being felt. Guez mentioned a significant decrease in the number of investors arriving in Israel since January. Investors and multinational venture capitalists, who used to visit Israel regularly, are now hesitant due to the uncertainty and risks associated with the country’s political situation.

The impact on Israel’s credit rating and the warnings from risk assessment firm Moody’s highlight the serious risks associated with this crisis. Moody’s even warns of a “significant risk” linked to political tensions. Amidst the ongoing demonstrations, the tech sector finds itself at a crossroads, with its talent and investor support hanging in the balance.

Tech workers and activists have pledged to continue the fight, whether through lobbying the government or making contingency plans. Nadav Zafrir, CEO of cybersecurity venture capital firm Team8, emphasized the importance of remaining a liberal democracy to attract young, talented individuals and maintain investor support from Europe and the US.

Israel’s tech industry now faces an existential battle, where not only democracy but also the future success and growth of the sector are at stake. As the situation unfolds, companies will have to make tough decisions about where to invest and establish their businesses. The outcome of these decisions will shape the future of Israel’s tech industry and its standing as the “Startup Nation.”


Conclusion

Israel’s tech industry, known as the “Startup Nation,” is at a critical juncture due to the country’s political crisis and controversial judicial reform bill. This has led to a divide among tech companies, with some choosing to distance themselves from Israel and others remaining committed to the country. The impact of this crisis goes beyond economics, with democracy, talent, and investor support also at stake. The decisions made in the coming months will shape the future of Israel’s tech industry and its position as a global leader in innovation and entrepreneurship.