68% of startups transferring money out of Israel – survey

New data from a survey conducted by Start-Up Nation Central reveals a worrying trends in which Israel’s tech industry is experiencing significant upheaval due to the government’s planned legal reform. The survey is based on discussions with 734 senior figures including CEOs and investors, representing 521 companies.

The survey found that because of the judicial uncertainty, 68% of startups in Israel have begun to take active, financial and legal measures, which include moving cash balances out of Israel, changing the location of the company’s registration (taking it outside of Israel), relocating and firing employees. The survey also found that 67% of investors are already involved in investments or are considering investing in foreign companies, and that investments outside of Israel are gaining increasing weight in the strategy of local investors and funds. The survey also shows that overall, startups and investors alike expect venture investment in the US to pick up more substantially and quickly in the US than in Israel.

76% of companies plan to make active changes after the reform

According to the findings of the survey, the vast majority, both of the investors and tech company executives, believe that legislative progress and promotion of the judicial reform at began at the start of the year will have a negative effect on the domestic tech industry. 78% of tech company executives indicated the negative impact of the judicial reform on their company’s activities, and 84% of investors said that the reform has negative effects on their portfolio companies. 80% of investors believe that worsening of relations between Israel and the US will also have a negative effect on the domestic tech industry.

As part of the active, economic and legal steps that the senior executives of Israel tech companies have begun to take, the survey found that 22% of the companies reported that they have taken cash balances out of Israel, and 53% reported that they took over 30% of their cash balances abroad. The investors indicated that 37% of their portfolio companies spent part of their cash balances abroad, of which 68% said that over 30% of funds were transferred.

19% of the companies participating in the survey reported that they had fired employees; About 46% reported that they had fired 10-30% of employees, and another 28% reported that they had fired more than 30% of employees. 25% of investors reported that there have been layoffs at companies in which they had invested, with 73% estimating the extent of the layoffs at over 10%. 8% of companies reported that they have begun changing the country of company registration, and 20% of investors said companies in their portfolio have started changing the country of company registration.

The survey found that the vast majority of startups plan downsizing in the near future, with 76% of companies planning to take active measures following the reform. 31% of companies intend to withdraw funds from Israel, 29% of companies plan moving the country of the company’s registration. 70% of these companies report that they have already taken active steps to examine the legal and financial implications of such a move.

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69% of investors expect that companies in their portfolio will change the company’s country of registration. 21% of companies intend to relocate employees, and 15% of companies intend to fire employees. 54% of these companies estimate that they will have to lay off 10-30% of employees, and another 31% of the companies estimate that they will have to lay off over 30% of employees. 71% of investors expect layoffs in the companies in which they have invested, with 64% anticipating layoffs of 10-30% of the workforce and another 20% anticipating layoffs of more than 30% of employees.

“We see how concerns become reality and plans become deeds.”

Start-Up Nation Central CEO Avi Hasson told “Globes,” “We are in constant contact with both company CEOs and investors and we are aware of the state of affairs, but usually in a more anecdotal way, while the survey should provide another layer, which is more accurate and statistical to see not only the mood but the actions on the ground and the picture depicted is very clear and very worrying.”

Hasson explained that “some of the actions that are taking place now can be reversed quite easily, for example withdrawing cash from the country. This is accomplished with a phone call and it can be reversed, but some of the actions that are currently being carried out by tech companies, such as switching the location of the company’s activity and its registration or relocation of employees will take a very long time to reverse.”

Hasson added, “We are seeing a decrease in investor confidence in Israel and a change in strategy as a result. The decrease in the scope of local investments is also evident among Israeli funds. For example, TLV Partners recently announced the raising of a fund, but also announced that the fund raised will invest quite a bit outside of Israel – that is, even Israeli investors are diversifying their portfolios outside of the country. The picture that is obtained is not very surprising, but it is certainly worrying, we see how concerns become reality and plans become deeds.”

Published by Globes, Israel business news – en.globes.co.il – on July 23, 2023.

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