High-tech VC Impacts Israel’s Economy More Than High-profile Exits Do, Central Bank Says

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File photo: 'High-tech park' in Ra'anana, Israel.
File photo: 'High-tech park' in Ra'anana, Israel.Credit: Tomer Appelbaum

“Exits may receive more media attention, but they apparently have less direct economic impact on the economy than raising capital,” states a report by the Bank of Israel on the country’s high-tech sector.

The report, analyzing high-tech financing in Israel, also addresses the current coronavirus pandemic and the global crisis.

Exits are primarily “a transfer of ownership between foreign bodies,” while venture capital investments are foreign currency infusions “that have significant financial representation within the economy.”

The report reviews the unusual role of the high-tech industry for Israel’s economy. “Israeli high-tech companies receive some 4% of global venture capital - ten times Israel’s portion of the global product,” they state. High-tech accounts for some 11% of Israel’s business product, an unusually high percentage compared to other countries. For developed nations, the figure is usually 5%, they state.

The industry is developing, and therefore needs more capital. In Israel, as in other countries, over the past few years the total funding for more advanced companies has increased.

The problem is that Israel’s economy is dependent on the high-tech industry, and the industry is dependent on foreign capital. “Most of the funding for high-tech is from foreign venture capital funds, and even the local funds are mostly funded by foreign investors,” the report states.

The impact of the coronavirus crisis when the first wave of infections peaked a few months ago was relatively minor on Israel’s high-tech industry, given the global economic implications; workers could work from home, and many of the companies have not yet started their sales phase, so income was not impacted.

However over the longer term, the industry may be harder hit, states the report. There are initial indications that some 4.2% of high-tech workers have been laid off due to the pandemic.