The Israeli technology sector has affected the entire economy (Al Jazeera)

The technology industry in Israel is going through a crisis that the economic newspaper Globes described as “difficult,” which is manifested through a decline in investments, layoffs of workers, the collapse of fast-growing startups, and other phenomena.

The beginning of the crisis

According to the Israeli newspaper, it began with the global economic crisis caused by high inflation, but it continued last year even when the rest of the world saw signs of recovery.

Early-stage startups have been hit hard by this trend, which is reflected in the difficulties in establishing new companies and the obstacles they face in raising funds.

One of the main aspects of the crisis is the sharp decline in the number of angel investors in Israel, according to data reported by the newspaper from the non-governmental startup support office (Startup Nation Central).

According to the newspaper, in the past, these investors constituted one of the main and most important frameworks for newly established startup companies, but this trend is changing today.

The number of angel investors in Israel decreased in 2023 to 61 compared to 251 in 2022, a decrease of more than 75%, and in 2021, there were approximately 300 active angel investors in Israel, which means that their number declined by approximately 80% in the two years. The last two.

“Angel investor” means an investor who injects his own capital into companies in their early stages, in initial financing rounds, and often receives shares in the company and a percentage of future profits. He sometimes works in groups that integrate investment into a company, and sometimes continues Personally with projects and they suggest investment.

Infographic of Israel's economic losses due to the Gaza War (Al Jazeera)

Legal amendment

According to the newspaper, the decline in the number of active angel investors in Israel comes despite a legal amendment that aims to attract them to companies in Israel, and last July the Knesset approved the “Angel Law,” or the Law to Encourage Knowledge-Intensive Industry, which grants - Other benefits include a tax exemption for private investors who invest in early-stage startups.

The Israeli Tax Authority and the Ministry of Finance say that these benefits are intended to encourage private investment, especially from strategic investors who have experience in the technology market, i.e. angels.

Based on data provided by Startup Nation Central, the law is far from achieving its goal, the newspaper reported.

The number of angel investors in Israel began to increase in 2010, and by 2019 there were 166 active angel investors in the country, and by 2021 the number had increased to 297, according to the newspaper.

The authority quoted D10 venture capital fund partner Itay Rand as saying that a number of factors are keeping angel investors away, starting with the global crisis in the technology industry, internal conflict and disagreement in Israel last year over changes in the judicial system, and now the war (in Gaza).

Source: Israeli press