Israeli Startups Hit Hard by COVID-19 Financial Crisis

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IATI CEO Karin Mayer Rubinstein and Daina Kleponė, Managing Director of Enterprise Lithuania. Photo Credit: Facebook
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By: Aryeh Savir

Over 50% of Israeli high-tech startups have reported that their operations will be discontinued within six months without additional funds and most companies generating sales are experiencing over a 25% decrease in their income, as the Coronavirus (COVID-19) generated financial crisis is hitting Israel’s technological world hard.

A survey conducted by the Israel Innovation Authority and Israel Advanced Technologies Industries (IATI) in mid-May among 414 high-tech companies in Israel found that 40% of high-tech companies reported that investors froze their funding, and half of the companies reported their banks are denying their requests for loans.

A total of 91% of companies have reported a slowdown in funding.

Companies increased the rate of layoffs from 17% to 25% in April and into May.

Approximately one-quarter of companies have reported laying off employees, and approximately 14% of companies reported wide-scale layoffs of over 15% of its workforce.

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.

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 regard to wages, one-third of companies confirmed extensive wage cuts of over 15%. One-quarter of companies are considering such cuts.

Aharon Aharon, CEO of the Israel Innovation Authority, said that “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,” he underscored.

Karin Meir Rubenstein, CEO and President, IATI, said that the results of the survey show that many early-stage technology companies are facing bankruptcy, and asserted that industry is not receiving sufficient assistance from the Israeli government.

She said that the support approved for high-tech companies, valued at NIS 1.2 billion, 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. The government must provide a comprehensive and immediate response to the problems already afflicting the industry due to the crisis, as well as the problems expected in its aftermath, in order to allow the industry to stabilize itself in the face of the expected recession,” she demanded.

(TPS)

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