Israeli government power grab makes future uncertain for new companies

JERUSALEM – A fight between the Israeli government and its judiciary is causing a great deal of discomfort in the corporate community of the “Start-up Nation.”

Globally, Israel previously ranked third for being startup friendly and has benefited as a result with many tech companies moving in take advantage, especially security and cybersecurity startups. However, the recent global economic downturn and a spate of judicial reforms that began in January and passed in July have seen that rating slip to tenth.

The reforms, as they currently stand, have had a serious impact on the tech scene in Israel, which saw as many as 68% of its startup companies beginning to take legal and financial steps to move away from or reduce their footprint in the country, in a survey conducted by Start-Up Nation Central.

“Companies and investors are taking active steps to move activity away from Israel and this behavior has increased significantly over the past three months,” said Start-Up Nation Central CEO Avi Hasson. “Concerning trends like registering a company abroad or launching new startups outside Israel will be hard to reverse. As an organization with a mission to strengthen the technology industry in Israel, it is our duty to share this data with decision makers in Israel and provide an up-to-date picture of the situation as it unfolds.”

Where will the startup winds blow in the future? The same survey indicated that as many as 65% percent of investors think that the United States is already seeing signs of economic recovery, or will within the next six months, as opposed to 12% for Israel.

Regardless the political turmoil hasn’t killed all interest ongoing development. Japanese insurance giant Sompo recently announced their intention to establish a cybersecurity center and software development group in the country. “Up until now we have focused at Sompo on collaborations with Israeli startups, and now we are establishing a software development team that is responsible for creating ideas for the agile development of new products according to Sompo’s specific needs.” Current innovation center CTO Diyaa Shridi told the Jerusalem Post in an interview. Security Systems News reached out to Sompo regarding the recent political upheaval in the country and whether it had any impact on their current or future plans for development in Israel but had not received a reply at time of publication.

One thing that is certain is that continued political fighting will be bad for business in Israel, Start-Up Nation Central’s survey indicated that 72% of investors believe there will be a negative influence on investment in new companies, and 31% of current companies intend to remove funds from Israel. Where that money will land is still up in the air.

You can read the full survey online at startupnationcentral.org.