Israeli high-tech is at a crossroads where, among other things, both its resilience and robustness are being tested. The high-tech industry entered 2023 following a significant decline in investments as part of global trends, and its companies and entrepreneurs were compelled to make adjustments to the new situation. However, no one could predict the two crisis events that shook Israel and the high-tech industry – the legal reform and the “Iron Swords” war. All of this occurs in an even broader context of an intense technological arms race between the West and the axis of non-democratic countries, a race leading to huge investments in the global technology industry and fierce competition among technology hubs worldwide.

This report reflects the state of the Israeli high-tech sector for 2024. Analysis of the data reveals a complex picture – on the one hand, the macroeconomic data reflecting the high-tech sector’s contribution to the Israeli economy continued to rise in 2023. On the other hand, however, declines were observed in a series of indices.

When reading the report, it is impossible to overlook high-tech’s tremendous importance to the Israeli economy. According to our analysis, from 2018-2023, the high-tech sector was responsible for over 40% of Israel’s GDP growth – an incredible figure that demonstrates the degree to which Israel’s economic growth depends on the success and strength of the high-tech sector.

An examination of other main macroeconomic figures also attests to the hightech sector’s resilience – approximately 9,000 tech companies operate in Israel, of which more than 500 are centers of multinational companies; nearly 400,000 people are employed in high-tech; the sector accounts for 53% of Israel’s exports and a fifth of its GDP.

That’s the good news, however, an analysis of all the macro indices reveals that some have returned to the levels of 2018 or even before. These indices include the total funding raised by startups and Israeli venture capital funds, the number of available jobs in the high-tech sector, the number of IPOs each year, and the number of new development centers opened in Israel by multinational companies. A continuation of this trend in the years to come may be reflected in the sector’s reduced contribution to the general economy.

Another challenge that needs addressing is the limited demographic diversity among high-tech employees, with many populations in Israel being significantly under-represented. The high-tech sector still consists primarily of Jewish men with a significant gender gap, while Ultra-Orthodox and Arab men and women combined comprise less than 5% of high-tech employees. A lack of diversity can also be seen in the thematic distribution of investments in high-tech, with 60% of them concentrated in organizational software, cyber, and fintech.

What then does the future hold for Israeli high-tech? Surveys we conducted among startups and venture capital firms show that the war has affected success in meeting goals and created delays in development, changed plans and, in some cases, even led to job dismissals and cost reductions. In general, the sentiment revealed in the surveys about the future is not a positive one – whether this is expressed by concern over future fundraising difficulties or by the respondents’ forecasts regarding a downturn in business activity.

In the face of these challenges and considering high-tech’s importance to the Israeli economy, it is paramount to ensure that the course of growth is maintained. In the short-term, economic policy is intended to manage market expectations and create certainty, especially in light of the sector’s reliance on foreign investments. One possible way to increase certainty is by creating a multiyear government plan for investment in high-tech that will reduce uncertainty and constitute an anchor for the industry and investors. Moreover, to continue the high-tech sector’s growth in the long-term, it is important to invest in quality education for all groups of the population throughout the country and at various stages along the educational and professional timeline.

Over the past year, the Innovation Authority has responded quickly to the changing reality and implemented several programs to support the sector, including the “Fast Track” for companies with a short runway, the launch of the Startup Fund for Early Stage investments in deep-tech fields, and the ‘Yozma 2.0’ Fund to incentivize Israeli institutions to invest in Israeli venture capital funds.

Immediately after October 7, we participated in a campaign with a main message which was that “Israeli tech delivers no matter what!”. In the spirit of that message, all of us – government and industry alike – must ensure that hightech remains strong and continues to grow in the future as a central engine of the Israeli economy.

Dr. Alon Stopel
Israel Innovation Authority

Dror Bin
Israel Innovation Authority