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\u201c…to establish Israel as a global leader in innovation and entrepreneurship that frequently grows innovation-driven companies which provide extensive, highly productive employment for all population groups and all regions of the country.\u201d<\/em><\/p><\/blockquote><\/figure>\n\n\n\n
Alongside this promising data, the Israel Innovation Authority has also identified alarming trends that point to challenges and obstacles that could potentially delay the development and prosperity of the Israeli high-tech sector:<\/p>\n\n\n\n
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- Analysis of high-tech output and high-tech exports shows that while there was growth in the software and R&D sectors,<\/strong>9<\/a><\/sup>The Central Bureau of Statistics categorizes the high-tech sector into two primary fields: knowledge-based services sectors (including communications, computing services and R&D), which for the purpose of this report will be called software and R&D sectors, and the industry high-tech sectors (including the pharma industry, electrical components, communications equipment, industrial equipment, and machinery and aircraft) which will be called commodities sectors. Source: Central Bureau for Statistics, Subcommittee for Official Classification of High-Tech Industries (2004).<\/span> the commodities sectors showed a decline in exports and output. <\/strong>This decline in the share of commodities sectors in exports and high-tech output is concerning. Israel\u2019s high-tech commodities industry is critical for the economy due to its contribution to output and export, its nationwide distribution, and its employment of a variety of professionals including R&D specialists. A large share of companies in this field are complete companies that operate manufacturing centers throughout the country. This sector also plays a key role in creating and preserving Israel\u2019s assets and innovation infrastructure. Scaling down the high-tech commodities sectors and relying on software, including the provision of services for multinational R&D centers (this was covered extensively in last year\u2019s Innovation Report) narrows the diversity of the Israeli innovation ecosystem. This trend could hinder Israel\u2019s ability to compete in the global market and to maintain its lead in identifying and developing upcoming technological trends.<\/li>\n\n\n\n
- Today\u2019s flux of new start-ups serves as the basis for the bolstering of growth companies and for the reinforcement of future high-tech output. Yet an analysis of data on fledgling start-ups indicates that in recent years, there has been a decline in the number of new start-ups, as well as a decline in the number of funding rounds for seed-stage companies. The Israel Innovation Authority believes that these phenomena are a call for action.<\/strong>
These trends are the result of several factors: the maturation of the Israeli innovation ecosystem, global funding and technological trends that lead to more attractive funding alternatives, and the pull of creative and talented entrepreneurs by large multinational companies (in-house innovation). This has resulted in fewer funding sources at the initial funding stages. A survey conducted by the Israel Innovation Authority of 275 Israeli angel investors, and a study on the involvement of types of investors, indicate that in recent years, there has been less smart money10<\/a><\/sup>Investors experienced in the field or experienced entrepreneurs who help management guidance. <\/span>accessible in seed stages.<\/li>\n\n\n\n- Data on growth companies points to difficulties raising debt financing sourced in Israel, which is critical for these companies\u2019 sustained growth. <\/strong>Debt is an important funding instrument for growth companies that require substantial capital to finance marketing and production for their continued growth without damaging the company\u2019s ownership structure. The Israel Innovation Authority\u2019s sample data indicates that Israeli growth companies\u2019 debt-to-equity ratio is significantly lower than the ratio in similar companies across the globe. This difficulty poses a potential barrier for their sustained growth in Israel, and encourages them to transfer central aspects of their activity overseas where it is easier to raise debt capital.<\/li>\n\n\n\n
- Despite the increase in skilled human capital in the high-tech sector, high-tech companies operating in Israel are still lacking skilled personnel. <\/strong>Data also shows that in 2019, the number of open high-tech positions was higher than any other R&D positions, reaching 12,500 according to the Central Bureau of Statistics,11<\/a><\/sup>Section 25, 31 and 31 in Central Bureau of Statistics surveys. Central Bureau of Statistics, \u201cEmployees, available positions, and the ratio between supply and demand\u201d classified by occupation (2011 classification) in select groups, 3rd quarter, 2019. <\/span>and 18,500 according to the SNC and Israel Innovation Authority report published in February 2020.12<\/a><\/sup>Human Capital Survey Report 2019, Israel Innovation Authority and Start-Up Nation Central. Based on data from the Zviran Institute<\/span> This shortage is continuing to boost the average wage in the sector, which is eroding Israel\u2019s relative advantage in the high-tech industry.<\/li>\n\n\n\n
- Political instability in Israel makes it difficult to quickly establish and assimilate a stable, long-term government policy. <\/strong>Israel\u2019s transitional government in 2019 slowed down government budget mechanisms, forcing the Israel Innovation Authority to delay its funding of companies. A transitional government also impedes the advancement of new policy and legislation processes required for the long-term growth of Israeli innovation. 2020 is expected to be under a continuous budget,13<\/a><\/sup>With this system, the budget allocated for each issue is identical to the previous year\u2019s budget, with some slight changes<\/span> which could further slow down government mechanisms. The Israel Innovation Authority is using all of its resources to minimize the damage caused to work processes and to the companies it funds to the greatest possible extent.<\/li>\n<\/ul>\n\n\n\n