Survey: Over 70% of Israeli high-tech companies report difficulties due to IDF reserve call-up

In the last two weeks, most of Israeli high-tech companies report that, on average, about 10% of their employees have been drafted into the IDF reserves, which has subsequently made it difficult for the companies' regular functioning.

On Monday, the Innovation Authority and SNPI (Start-Up Nation Policy Institute) published a survey conducted among 500 high-tech companies operating in Israel (locally or foreign owned) which shows that 70% of them were operationally affected due to the recruitment of key personnel into reserves. In addition, the companies also note a decrease in employee performance, due to the lack of frameworks for children, emotional reasons, and more. The manpower issue mainly characterizes the older companies, while in the younger companies the main difficulty since the outbreak of the war has been financial.

From the analysis of responses, it appears that financial difficulties are typical for companies in the early stages, with over half of the companies mentioning these difficulties. In contrast, late-stage companies emphasized the decrease in personnel productivity as a major factor (54%) while financial issues were mentioned by only 31% of the companies.

An examination according to the latest investment stage of the company shows, as expected, a higher proportion of early-stage companies that experienced cancellation or delay of an investment deal following the war (47%), but points to a significant phenomenon in late-stage companies as well. About 30% of the companies with a B round or higher reported a similar challenge, despite being more mature companies, with reduced risk and a richer past of investments.

Quite a few companies are at risk of closure and the Innovation Authority launched for them an expedited bridging route with an initial scope of NIS 100 million designed to extend their runway, i.e. the length of time they can exist without raising additional capital. The survey was answered by companies in different sectors and in different stages of recruitment. The survey is a representative sample of the Israeli technology industry, where 80% of the multinational companies that participated in it also reported an impairment of functional continuity following the widespread recruitment into the reserves.

A cross-check between all the companies' reports shows that 80% of them experienced damage as a result of the situation. Israeli high-tech entered this period at its lowest point in years. Even before the outbreak of the war, and throughout the last year and a half, there were negative trends in the activity of the Israeli high-tech industry, in all its aspects, including capital raising and the establishment of new companies. This, both as a result of the global slowdown and as a result of the political and social instability in Israel. The current war naturally adds to the uncertainty in the Israeli innovation ecosystem, and threatens to damage the stability and economic resilience of the entire State of Israel.

However, in the longer term, precisely the high-tech industry that is based on sales in the international market and benefits from the strengthening of the dollar against the shekel, can be an island of relative stability in the developing economic crisis in Israel. Most of the companies have branches abroad to which some of the tasks that are not currently carried out in Israel due to the situation can be transferred.

Meanwhile, 70% of the companies that participated in the survey reported the postponement or cancellation of projects and orders due to the lack of ability to carry out pilots and clinical trials, to promote important development projects, alongside difficulties in exporting and importing from abroad. In this context, most of the companies stated that the main challenge is not necessarily with the customers from abroad, but with the Israeli customers who have frozen their activity.