Israel Innovation Authority and IATI Survey Reveals Startups Hard Hit by Pandemic Crisis

Over 50% of companies say without additional funds they will have to discontinue operations within six months

Copyright: Iropa

Israel’s high-tech industry has been hard hit by the COVID-19 crisis, according to a new survey released by the Israel Innovation Authority and Israel Advanced Technologies Industries (IATI) on Sunday.

The survey was conducted in mid-May, 2020 among 414 high-tech companies in Israel, of which most employ no more than 50 employees, and paints a complex picture for the entire sector.

According to the findings, 40% of high-tech companies reported that investors froze their funding while half of companies reported that their banks are denying requests for loans. Additionally, over 50% of companies have reported that without additional funds, they will have to discontinue operations within six months.

“The picture painted by this comprehensive survey shows that high-tech companies, with an emphasis on smaller startups, are facing significant challenges. The fact that 65% of startup companies with between 1-10 employees have reported that they would be unable to continue beyond six months highlights the importance of government support," said Aaron Aharon, CEO of the Innovation Authority. "The Innovation Authority continues to monitor conditions in the high-tech industry, and is committed to providing tools to assist its recovery and the growth of the entire Israeli economy.”

The findings further indicated that approximately one quarter of companies have reported laying off employees, and approximately 14% of companies reported widescale layoffs (over 15% of workforce). This trend is especially apparent in software and communications companies (19% of companies). If conditions continue, 57% of companies have reported plans for extensive layoffs in the next six months. In addition, 71% of companies have reported that they have frozen hiring processes due to the crisis.

Moreover, the survey found that more than one third of companies have reported putting employees on leaves of absence, with smaller companies reporting a higher share of employees on leave than larger companies. With regards to wages, one third of companies confirmed extensive wage cuts (over 15%), with significantly higher rate among growth companies. So, for example, 49% of companies in their Series B funding round have reported extensive wage cuts, of over 15%, compared to 16% of public companies. 

With regards to funding, the survey found that 91% of companies have reported a slowdown in funding. Also upon requesting additional funds from investors, companies have reported that most current investors are on the fence or are providing no support to companies. 

"The results of the survey show that many young technology companies are facing bankrupcy, and the industry is not receiving sufficient assistance from the Israeli government. The additional support approved for high-tech companies, valued at 1.2 billion NIS, is not sufficient and is not based on a thoughtful and methodical response. The innovation industry is the main growth engine of the economy, and has been carrying the Israeli economy on its back towards unprecedented growth and prosperity, almost without any government support," said Karin Meir Rubenstein, CEO and President of IATI. 

She called on the government to provide a "comprehensive and immediate response" to the problems afflicting the industry.

"In light of the figures we have, government must provide a response to the immediate needs that came up in the survey, and provide financial solutions that will allow industry continued effective existence. Otherwise, we are gravely concerned for a potential collapse of the high-tech industry as we know it, which would lead to an undermining of the entire economy," she added.