“The word ‘crisis’ is not relevant to the reality of Israeli high-tech”

Ahead of the finals of Calcalist and Poalim Hi-Tech's third StartUp+ competition, we gathered a number of HR experts from the high-tech world and asked them to provide insights on human capital management in the Israeli high-tech industry, especially in light of the current crisis.

Tell me about the talent recruitment process. How does it work in a time of crisis? What’s changed?

According to Natalie Refuah, a General Partner in Viola Growth: "There are more candidates for jobs in high-tech, but not when it comes to top talent. Most companies have started to decline in value and there is less money for recruitment. As a result, they have started to reduce and freeze recruitment. The first layer they cut is 5%-10% of the workforce which is less significant to the company, and they are the ones looking for work. The top talent is not let go so quickly. I think that from now on the situation within the companies will be more stable. If previously there was the option to jump between companies and increase salaries, now this is not as much the case. There will be more stability in this field."

Natalie Refuah, Gali Meamen Sheffer, Tal Dori, and Or Shoshani. (from right)

Refuah also added that in terms of conditions, "salary has risen a lot in the last two years due to the increasing competition, in terms of options there is a certain anomaly in the market today. If someone was accepted to a company a few months ago and agreed on options, in some cases they are no longer relevant. There is a big question of what will happen in the recruitment field from now on. It's not really clear yet."

And what about layoffs, have they also changed following the crisis? Are there really more layoffs? How do you see the situation on the ground?

According to Gali Meamen Sheffer, Vice President of Banking at Poalim Hi-Tech, "companies are currently preparing for a challenging period and are taking various measures aimed, among other things, at extending the company's runway, therefore one of the measures is efficiency, which also means efficiency in employees. The year 2021 was exceptional in terms of investment amounts in the venture capital industry as well as massive hiring, high wages and benefits. The current period is different and has an impact on hiring and benefits. The efficiency is expressed in giving up employees in the fields of marketing and services and less in the fields of R&D. Despite this, according to the report of the Israel Innovation Authority, the industry still lacks approximately 13,000 workers. The war in Ukraine can create opportunities, since development centers of Israeli companies that operated there were closed and some of them were transferred to Israel."

Or Shoshani, CEO of Lightlytics, says that "we are aware of the new reality in which the atmosphere is changing. This is noticeable in what the investors broadcast to start-ups and how we approach customers in the potential market. Right now people are on standby because it is not known if the crisis is going to be very deep and for how long. People are changing jobs less, organizations are freezing budgets this year and this is reflected in the postponement of buying technologies, and some companies are also cutting back on manpower. I think that these layoffs of 10%-15% are just the start of a bigger wave. The layoffs are not of key people in the companies."

Refuah adds that "it is difficult to know if we are in the midst of a wave of layoffs and if there is a certain trend because it is related to the world economy and the recession in the economy. But I do think that today there is much more awareness of the money that companies spend and they save more and cut non-essential expenses. The 10% of the workforce that is laid off is mainly employees who are less essential. For us, in the event that one of the companies that work with us makes more significant layoffs, we try to help those employees find new jobs. We actually pass along lists of those employees and try to find them other job options."

Tal Dori, CEO of IBI Capital, which manages trusts and options for employees in high-tech companies, believes that "contrary to the popular discourse today, there is no wave of layoffs in the Israeli high-tech industry. The high-tech sector has about 300,000 employees in Israel and several dozen or hundreds are being laid off - this is not a wave. At the same time, yes, you can see that the rate of hiring workers has decreased."

Is the fired manpower in a hurry to exercise their options?

"The answer is no," Dori explains, "most of the fired are employees who aren’t part of the company’s core, like marketers, economists, etc., and they usually haven’t been long in the companies from which they were fired, so most of them have not even matured the options they received and therefore have nothing to exercise. Apart from that, most of the layoffs you hear about in the press are of workers in the U.S., even if they work for Israeli companies. The other reason is, of course, the prices of shares, most of which have been cut by dozens of percent, and the feasibility of exercising at this time has become in some cases not worthwhile at all."

Since you mentioned the U.S., let's talk about remote employee management. Why actually integrate employees from abroad into the company? How do you deal with remote management and different expectations of the employees?

According to Shoshani, who manages two different types of workforces overseas - workers in the U.S. and contractor workers in Eastern Europe: "The contract workers get their work from us, and the company that employs them gives them a salary. The significant challenge with employees of this type is that they need to be motivated and connected to the core of the company, in order to get more out of them, and make them understand that they are no different from the development workers in Israel. The first thing we did to overcome this challenge was to fly the key employees from there to Israel, so that they would get to know us, the product and the company. We even went out with them in the evening to create a connection. In addition, our HR sent them products such as shirts, notebooks, jackets and hats, all the things that make a unit proud. The challenge in the U.S. was dealing with time differences, and the number of employees in relation to Israel (2:35)."

And why actually hire workers from abroad and not only from Israel?

Shoshani says that, "we brought people from the U.S. to serve customers. Most of our target audience is from the U.S., the time difference is difficult, so having a team from Israel manage American clients is not always possible. In addition, now with the exit from the pandemic, many conferences and meetings are again face to face, and so we have someone in the U.S. who can represent the company. The third thing is that there is an advantage to having a native work for you who speaks the language, understands the culture, and better understands the other side. This gives your customers confidence that the company has a team around the world and especially from where they come from. Customers ask all the time if we are in the U.S. and if we have other customers in the U.S."

Following the current crisis, are companies offering more salary and fewer options?

Dori explains: "By and large, the answer is no. The recent period, at least from what I see, is actually marked by the moderation of wages in high-tech. In terms of the volume of the granting of options, we do not see a big change. Contrary to what it seems, the general pool of options in the market has even increased because many new start-up companies have been established, recruited and granted options to employees in the first half of 2022."

What was the impact of the recent high-tech crisis on the options field?

According to Dori, Israeli high-tech is not in a crisis at all. "A quick review of the data for the first half of 2022 and the second quarter of this year unequivocally illustrates that the word ‘crisis’ is not relevant to the reality of Israeli high-tech. In the first half of 2022, for example, Israeli high-tech raised in various rounds almost $10 billion dollars, which is the amount raised in the whole of 2020, and much more than any year before it. There were more than 60 exits in the first half of the year and about 46 new start-up companies were established (according to IVC) compared to about 700 companies that were established in the entire year of 2021, which was a very unusual year. 2021 was characterized by a boom, or rather an escape of the high-tech sector from reality. Astronomical multiples, excessive valuations and euphoria that was never going to last forever. Now we're just coming back to reality.

"In terms of the impact on the employee options market, there is really no unequivocal impact. The sector continues and will continue to use the equity compensation tool as its main tool for employee compensation. Some companies are currently looking at re-pricing the options they granted in order to restore viability to employees and some are adopting new programs to suit the current situation."

What do you think the future holds for Israeli high-tech?

"Despite the challenging period, the high-tech industry will continue to develop and be a growth engine for the economy. According to the updated report of the Innovation Authority, Israel continues to be a world leader in the proportion of employees in the high-tech industry. In 2021, the proportion of employees in the industry crossed the 10% mark for the first time, and in accordance with the government's goals and the development of the industry, we believe that this proportion will increase over the years. In my estimation, we will also witness another phenomenon. In recent years there has been a consistent decrease in the number of new start-ups opened. However, with the trend of downsizing and efficiency in the large companies, some of those who were employed in key positions in these companies will become entrepreneurs and establish new ventures and the number of new companies in the industry will begin to grow again."