ISRAEL: An Introduction to Intellectual Property: Prosecution
Israel 2023 & Q1 2024: A Year of Resilience
After rebounding strongly from the COVID19 pandemic, and proving resilient to the repercussions of Russia’s war against Ukraine, 2023 brought new challenges to Israel’s economy. Inflation and rising civil unrest over the, proposed judicial reform, and ultimately, war with Hamas, forced the slogan “Israeli Tech Delivers” upon the small yet energetic Start-up Nation. The slogan, which became widespread among foreign investors in a designated campaign, best reflects Israel’s economy’s unbelievable ability to function properly and even dare to prosper under the harshest conditions, or as the campaign suggest “No Matter What”.
Economic and Political Conditions
2023 was marked by significant economic challenges for the Israeli Tech sector. The global recession that began in 2022 led to a sharp decline in the financial markets and a 40% reduction in capital investments in Israeli High-Tech companies compared to 2021. The collapse of Silicon Valley Bank (SVB), which had close ties with many Israeli technology companies, raised concerns about the stability of the US banking system.
Domestically, Israel started 2023 with social and political turmoil due to constitutional changes sought by the government. This led to a state of political uncertainty, weakened the local currency, warnings from ratings agencies, and a general loss of confidence among investors in the local Tech industry.
The most notable constitutional change was the proposed so-called judicial reform, which aimed to curb the judiciary’s influence over lawmaking and public policy by limiting the Supreme Court’s power to exercise judicial review. The change intended to grant the government control over judicial appointments, and limited the authority of its legal advisors. The reform sparked unprecedented protests across the nation which, persisted until later that year when the Supreme Court intervened, and ultimately struck down the first law proposed under its framework.
The year concluded dramatically as the entire nation found itself thrust into war. The impact on the economy was immediate, with a significant portion of the workforce transitioning to military service, leading to a pause in ongoing projects, an evacuation of Israel’s northern border - with many forced to relocate their homes and working places- and heightened global concern regarding potential repercussions and the various trajectories the war could take. As the war unfolded, the economy adapted to the new circumstances, and investor confidence gradually began to return. The resilience of the economy was exemplified by the local currency, which rebounded impressively after experiencing a decline of more than 4.8 % during the war, ultimately surpassing pre-war levels.
Surprisingly, or perhaps less so for those familiar with the historic resilience of Israel's economy, as the war unfolded, a showcase of solidarity among companies and individuals, coupled with the strong foundations of the well-diversified ecosystem, facilitated a swift adaptation to the new circumstances. Amidst the challenging conditions, confidence grew alongside an aim to reverse the general economic downturn of 2023.
The Resilience of the Tech Sector
Despite the challenges, the Israeli Tech sector remained robust. As the slogan dictates, Israeli Tech companies have maintained business continuity and have shown characteristic agility and creativity in overcoming setbacks dictated by the new reality.
Israel’s High-Tech sector, contributing to 14% of employment and nearly a fifth of the GDP, has been quick on its feet demonstrating remarkable agility as well as social responsibility, inspiring others to follow its path. The High-Tech sector in particular has managed to not only continue its operations seamlessly but also to make significant social contributions to Israeli society, both financially and through the establishment and support of large-scale communal initiatives. These initiatives have played a crucial role in providing on-the-ground assistance and moral support to those in need, demonstrating the sector's commitment to social welfare alongside its business activities.
In 2023, Israel’s defence exports reached a record high of USD12.5 billion, led by global interest in drones and air defence systems. The Abraham Accord countries in the Gulf bought approximately USD3 billion-worth of defence platforms. This means that since the peace deals were signed in 2020, sales to countries that Israel has new ties with, are now almost as high as all of Israel’s USD3.6 billion in sales back in 2005. Within the defence industry, Cybersecurity stands out in M&A exits surging to USD2.8 billion. Cybersecurity is Israel’s top-performing Tech sector in general, securing an average funding round amount of USD27 million in 2023.
Despite a substantial decline in investments, ongoing trends in the tech eco-system continued to develop in 2023, with impact sectors such as Agri, Food, Climate and Health Tech, proceeding to take their place as significant fronts. Health Tech is the biggest of all in the Israeli ecosystem in terms of company count – over 1600 companies, representing 22% of the ecosystem.
Nurturing Innovation: Policymakers Boosts
Recognising the significance of the tech sector as a vital asset for nurturing, Israel’s government and legislators persisted in allocating their budget to create conditions conducive to global-scale growth.
Small startups benefited most from substantial measures taken by the Israeli government through the Israeli Innovation Authority to help them cope with the deficit in opportunities to obtain investments. A few examples of the efforts invested by the Israel Innovation Authority in 2023 include launching of an expedited process for accessing government grants, a professional training program for supporting recruitment in the High-Tech sector, establishment of a fund purposed to invest in Deep-Tech companies, and even launching of three innovation consortiums designated specifically for Climate-Tech startups which got a lot of global focus during 2023, in an attempt to open up avenues for Israel to become a global exporter of climate-Tech solutions.
The Israeli government also passed a new law to encourage investments in Tech startups. Known as the “Angels Law”, it grants tax benefits to investors in the local High-Tech industry as well as incentives for purchasing other Tech companies if the intellectual property is registered in Israel and their operations are based in the country.
Also during 2023, the Israeli Patent Authority took significant steps to enhance its accessibility to the global public. It officially began to issue Official Notifications in English, instead of Hebrew, eliminating the necessity for translation and thus saving costs for foreign applicants, and offered regularly training sessions for local and global inventors on its already launched revamped website featuring advanced search technologies for accessing to patent information.
Aftermath
The year 2023 in Israel was characterised by a remarkable display of resilience and determination amidst significant challenges. While facing inflation, civil unrest, and a war with Hamas, Israel's economy proved its ability to thrive under adverse conditions. The Tech sector, a vital component of Israel's economy, demonstrated remarkable agility and responsibility, contributing significantly to the GDP and the Israeli social fabric. The defence industry emerged as a cornerstone providing both a cutting-edge advantage in technological warfare and attracting global interest to bolster Israel's economic standing. Israel surfaced from 2023 stronger and more resilient, poised to continue its trajectory of growth and innovation support in the years to come.
Q1 2024: The Rebound
The first quarter of 2024 brought hope to Israel's Tech sector, indicating a potential recovery and highlighting the industry's resilience. Despite the previous year's challenges, Israeli startups secured USD1.74 billion in funding, with an increase in the number of closed deals to 113, primarily driven by a surge in early-stage investments. Cybersecurity emerged as a top performer, attracting USD630 million in capital across multiple large rounds. Mergers and acquisitions also saw growth, reaching USD2 billion with four companies acquired for over USD200 million each, making it the most active M&A quarter since Q1 2022. As the country is still in a state of an , these positive indicators suggest that the delivery "No Matter What" spirit has successfully resonated with global investors. They remain convinced of the potential for investment in Israel's Tech sector, recognising the industry's commitment to innovation and growth even in the face of adversity.