Israeli startups are moving jobs and money out of the country. Here’s why

Israel passes first step in judicial overhaul Yael Aranoff, Director of Serling Institute for Jewish Studies reacts to Israel's controversial judicial reform laws.

TEL AVIV, Israel — Almost every weekend for more than 30 weeks, tens of thousands of Israelis have taken to the streets of Tel Aviv to protest against government plans to weaken the judiciary and chip away at the independence of the Supreme Court.

Among those protesters marching up Kaplan Street in central Tel Aviv on Saturday was Chen Amit, co-founder and CEO of a fintech startup called Tipalti that was most recently valued at US$8.3 billion.

“We cry for democracy and we fight for democracy,” Amit tells CNN. He and his family come out to protest every week.

Amit and Tipalti President Robert Israch founded the firm in Israel in 2010. The global accounting and payments company is based in Israel, but headquartered in Foster City, California.

Its uber-modern offices in Tel Aviv aren’t especially notable — except that they overlook the site of last month’s car-ramming and stabbing spree by a Palestinian militant that injured eight.

But it’s his own government – not the Israeli Palestinian conflict – that worries Amit most. The judicial overhaul and the uncertainty, disruption and risks that come with it, are forcing him to shift Tipalti’s money and talent overseas, he says.

The company keeps all its funds outside Israel, apart from three months’ payroll as required by its bank, he says. Due to the risk on business continuity prompted by the overhaul, the company obtained an L1 visa that allows a US employer to transfer staff from its foreign office to its American one, he adds.

Amit expects 15 per cent of his Israeli staff to move abroad within the next 18 months.

He’s not alone. A recent poll from the non-profit “Start-up Nation Central” (SNC) found almost 70 per cent of more than 500 startups surveyed are taking steps to shift money, workers and even their headquarters outside Israel as a result of the overhaul. Some are even laying off staff.

At the same time, money going into Israel’s 7,000 startups is plunging, says Ari Strasberg, SNC’s Vice President of Strategy. “Investments in Israel are declining significantly,” he says. Between last year and this year, there has been a 70 per cent drop in investments, he says.

He said the trend was “worrisome,” because unlike in the US, where a decline in startup investment has started to reverse, the drop is continuing in Israel, adding that the last quarter alone saw an additional decline of 30 per cent.

Private investment — mostly from venture capital firms — in Israeli startups in the first six months of 2023 stood at US$3.9 billion, the lowest since 2018, according to SNC.

Adding to the gloom is a decline in the Israeli currency. The shekel has dropped in value by more than 5 per cent against the US dollar this year amid warnings from US investment bank Morgan Stanley, credit ratings agency Moody’s and even officials from Israel’s own Finance Ministry that the judicial overhaul could do serious damage to the economy.

Officials from the ministry estimate that as much as 100 billion shekels (US$27 billion) of economic growth could be lost a year, citing potential downgrades to Israel’s credit rating, falling investment and a weaker shekel as some of the reasons.

Government ministers declined CNN’s request for an interview. In a statement released in the wake of the Moody’s report last month, Prime Minister Benjamin Netanyahu and his Finance Minister Bezalel Smotrich said the economic impact would all blow over.

“This is a momentary reaction. When the dust settles it will become clear that Israel’s economy is very strong. Israel’s economy is based on solid foundations and will continue to grow under experienced leadership that leads a responsible economic policy.”

But with a smaller and shrinking tech ecosystem, it may not grow as fast as it could.

Technology, driven both by multinational companies and homegrown startups, accounts for around half of the country’s exports. According to SNC, tech startups raised US$15.5 billion in 2022, the equivalent to just under 3 per cent of the country’s GDP.

Protesters still hope the government will reverse course, or that its judicial overhaul bills will be struck down by the Supreme Court. If neither of those happen, the boisterous-but-largely peaceful protests will continue. Amit and his family will keep showing up. And the so-called “Startup Nation” may need to find a new moniker.