The tech industry is the driving force behind the growth of the Israeli economy. But instead of working on the next innovation, many startup employees are defending their home at the front. The draft by the military not only has direct consequences for the startups themselves.
“I have a gun on my knees, I have a helmet on my head, and I have a vest.” The Washington Post quotes the Israeli entrepreneur Or Shoval with these words. “But if I have to wait half an hour, then I’ll work for half an hour,” says the founder of the medical startup Remepy. For many employees in the Israeli tech industry, everyday life after the brutal attack by Hamas consists of a difficult balancing act: on the one hand, defending the workforce their home. On the other hand, business should not fall by the wayside. However, with more and more employees on the front line, this is difficult to achieve. According to its own information, the military has now confiscated 15 percent of Shoyel’s team.
“The consequences of the Hamas attack on the tech industry are devastating,” said Deputy Managing Director Charme Rykower of the German-Israeli Chamber of Commerce and Industry (AHK) in Tel Aviv in an interview with ntv.de. “The industry is not only suffering from the lack of workers due to mobilization and the ongoing rocket fire.” What’s also particularly serious: “At the moment, investments by foreign investors have come to a complete standstill.” According to official information, the high-tech industry is recording sales losses of 70 percent.
Remepy’s example is not an isolated case. A number of startup employees are now in military service. Ronen Nir, managing director of the Israeli office of the US venture capital firm PSG Equity, estimates that between 10 and 15 percent of technology workers have now swapped their office for the front. That represents about 60,000 of the 400,000 people employed in the country’s high-tech companies. In total, the Israeli army has already drafted 360,000 people. “The morale among the remaining employees is poor, or they simply don’t have the head for the work,” the Israeli business magazine “Globes” quoted Nir as saying.
Conscription also threatens Israel’s economy
Unlike startups, which often have a few employees, large companies can better compensate for the call-up of their employees for reserve duty. “They already have a support network for foreign customers, and their sales staff are often abroad,” says Adam Fisher, partner in the Tel Aviv office of US venture capital firm Bessemer Venture Partners, “Globes”. “Even if development is delayed by a few weeks, it won’t be a big blow to large companies.” But for a small company with fifteen employees, in which the managing director and three engineers were called in, the blow could be very hard indeed.
The drafting of employees not only has direct consequences for the startups themselves. It is also a threat to the Israeli economy, which directly benefits from the extremely competitive high-tech industry. According to a report by the Israel Innovation Authority, the sector generates 18 percent of gross domestic product, 50 percent of exports and 30 percent of income taxes.
Regardless of this, Ido Baum, a law professor and director of the Brandeis Institute for Society, Economy and Democracy, sees no reason for concern for the overall Israeli economy in an interview with ntv.de. “Because the startup industry is knowledge-based and often does not require the physical presence of employees in the workplace, it is likely to be least affected by war.” This has already become clear during the Covid-19 pandemic. “Obviously some services and projects will be delayed, but this will not have a long-term impact.” Rykower from the AHK also agrees with this. “The Israeli economy has always proven to be particularly resilient,” she says, looking optimistically into the future. Israelis are masters in overcoming crises, but also in creative solutions. “There is therefore a good chance that, despite the extreme threat situation, we will soon see innovative business models ‘Made in Israel’ again.”
The state is helping startups
Nevertheless, the Israel Innovation Authority has already announced special measures for startups that are reaching their limits due to the outbreak of war. According to this, around 100 million shekels (equivalent to 23 million euros) are available to around 100 Israeli companies that are having difficulty getting financial support from investors. The money is intended to enable the sector to quickly return to growth after the end of the war.
Baum believes it is unlikely that investors will lose their trust in Israel. He suspects that international donors were more concerned last year about anti-democratic developments in the Israeli government than about the war. “The trust of investors in Israel is at least shattered for the near future,” admits Rykower. However, if this war remains regional and limited in time, she does not see investors withdrawing from the country in either the medium or long term.