Even though Israel is slowly returning to normal, following the government’s COVID-19 restrictions. The crisis’ glooming economic implications are just now starting to show, especially in the Israeli high-tech industry. A new survey published by Israel’s Innovation Authority and Israel Advanced Technologies Industry (IATI) in mid-May shows just how dire the situation is, painting a pretty alarming picture regarding Israeli startups over the next few months.  

25% of startups have already started to downsize, and it’s just the beginning

The survey, which included 414 Israeli startups, illustrates that the recent crisis has forced a quarter of the companies to take the path of downsizing. With 14% of the startups reporting that they have laid off at least 15% of their workforce. With fears rising, the next 6 months are critical, companies are estimating that if the situation continues, then mass layoffs might become the new reality. Though not all industries have been hit the same, while hardware and software companies face the biggest turmoil, Pharmaceutical and biotech companies have had to shed only 6% of their employees.

More than a third of the surveyed companies reported placing employees on extended furloughs, with 71% of the companies also freezing recruitment of new employees. The woes don’t stop there, as a third of the companies reported at least a 15% salary cut to employees, while a quarter of the companies are expected to take the same path in the upcoming months.

Most companies have reported a slowdown in funding

It was just in April, that we saw huge funding rounds, especially compared to recent months. However, the month of May told a totally different fundraising story, with companies feeling the investment wells drying up. Based on data released by the Innovation Authority, 91% of the companies have confirmed a slowdown in funding, while 40% of the companies who were in the middle of a fundraising process have reported investors freezing the life-giving pipelines that startups depend on to survive. This new reality has left 51% of companies requesting further funding from existing investors, however, only 19% of them have obliged. Only 9% of the companies reported business as usual, while half the companies revealed that even their bank loan requests were rejected.

“The picture shows that high-tech companies, and in particular startups, are facing challenging times ahead. The situation has gone far behind a few handouts here and there, but the fact that 65% of startups with 10 employees or less are claiming that they won’t survive the next 6 months really expresses the need for government support,” according to Aharon Aharon, CEO of Israel Innovation Authority which previously announced that they will fast track a 500 million NIS stimulus package to small and medium startups.

The surveyed companies come from a variety of different industries: 41% from software, 41% from medical, and 18% from hardware and communications. The majority of the companies are small, employing up to 10 people, with 20% employing between 11-30 workers, 6% between 31-50, and the rest employ 50 or more. About half of the surveyed companies are in Seed or pre-Seed stages, while 22% are in their series A funding round, 13% in series B, and only 10% in series C with the rest being publicly traded companies.