Israel IT Market

Software Development (Israel Market)

Main Article: Software Development (Israeli Market)

2022: US and Israel strike strategic IT partnership

In mid-July 2022, US President Biden and Israeli Prime Minister Yair Lapid signed a document that concluded a strategic partnership between the countries in the IT sphere. Its goal is to establish an American-Israeli technological partnership in critical and new technologies and solutions to global problems: pandemic preparedness, climate change, the introduction of artificial intelligence and trusted technological ecosystems. Read more here.

2021: Amid NSO scandal, Israel says to ban sale of cyber technology in 65 countries

The Israeli Ministry of Defense has sharply reduced the list of countries to which Israeli companies are allowed to sell their cyber technologies. The reason was the scandal around the Israeli manufacturer of commercial espionage PONSO Group. This became known on November 25, 2021.

According to the news publication Calcalist, if earlier the list included 102 countries, now it has been reduced to 37. In particular, Morocco and the UAE were excluded from it, in which cases of human rights violations are known.

In addition, Israeli companies are now banned from selling their cyber technology to Saudi Arabia and Mexico. The Saudi government is accused of using NSO Group-developed Pegasus spyware to spy on Washington Post journalist Jamal Khashoggi, who was killed inside the Saudi consulate in Istanbul in 2018. The Mexican government has also used Pegasus to spy on journalists and activists.

Yet India, also caught abusing NSO technology to spy on journalists, political opposition and activists, remains on the list.

The updated rules will have a huge impact on the Israeli cyber technology industry.

NSO Group has faced a flood of international criticism over allegations that it helps governments spy on opponents of the political regime and human rights activists. However, according to the company itself, its product is intended solely to help countries fight crime and terrorism.

The U.S. Commerce Department blacklisted NSO Group, limiting its ties to American companies.

At the end of November 2021, Apple sued NSO Group for attacks on iPhone users. Among other things, the company has sought damages from NSO Group related to the resources spent responding to the spyware manufacturer's alleged abuse of its products. Apple will donate all the compensation received to organizations that expose such spyware.

Apple is the second major American company to sue NSO Group. In 2019, she was also sued Facebook (now Meta) for hacking. WhatsApp Earlier in November 2021, the Court of Appeal USA rejected NSO Group's appeal.

This week, credit rating agency Moody published indicators judging by which NSO Group risks being on the verge of default on a debt of about $500 million amid upcoming cash flow problems after being blacklisted by the US Department of Commerce^[1].

2018

Growth in investment in IT companies by 17% to $6.47 billion

In January 2019, it became known that private technology companies in Israel, which are the main driver of the country's economy, in 2018 attracted a record $6.47 billion in investments. This is 17% more than a year earlier.

Dynamics of changes in the number and volume of investments in Israeli IT companies, data from Israel Venture Capital Research Center and ZAG

Such data are provided by the Reuters news agency, citing a report by the Israel Venture Capital Research Center and the law firm ZAG.

Investment in Israeli IT companies in 2018 was a record

The average amount of funds raised by Israeli technology companies during one round of financing amounted to a record $14.4 million, which is 36% more than in 2017 and almost twice the result of 2014. At the same time, the number of closed investment transactions in 2018 decreased to 623 from 661 in 2017.

Most of the capital was raised by well-known software companies with annual revenues of up to $10 million, which work in the markets for artificial intelligence and cybersecurity technologies, "said Marianna Shapira, director of research at Israel Venture Capital Research Center.

In the fourth quarter of 2018, investments in the Israeli IT sector were measured at $1.82 billion, up 8% from the previous three months.

2018 was the most successful year for Israeli information security companies, as they managed to raise a total of $1.08 billion in investments. However, this is not the largest indicator: for example, startups representing the biomedical industry raised $1.2 billion, which almost exactly corresponds to the value of a year ago.

Among the trends related to investments in Israeli technology companies, experts note a tendency to reduce the number of transactions up to $5 million and an increase in the number of transactions from $20 million.^[2]

Israel ditches Microsoft software as product costs double

In August 2018, the Israeli government announced the termination of a licensing agreement with Microsoft, as the new conditions involve doubling the cost of the company's products. Read more here.

Israel's IT industry is in crisis. Why foreigners do not want to work there

Israel's IT industry is in crisis: it lacks its own highly skilled specialists, and foreigners do not want to move to the country for reasons such as visa problems, concerns about their own security and low salaries. This is stated in the publication of the Financial Times (FT) of July 4, 2018.

IT entrepreneur Liad Agmon launched and sold two technology startups in Israel and is developing another one - Dynamic Yield. It offers services to at least 500 million users, including the British online hypermarket Ocado and the American sportswear manufacturer Under Armour.

Israel has enough of its own highly skilled IT specialists, and foreigners do not want to move to the country for reasons such as visa problems, concerns about their own security and low salaries

According to Agmon, the shortage of personnel limits the activities of IT companies and leads to an increase in the salaries of relevant specialists. In such conditions, the businessman thought about whether his new startup should develop in Israel or it makes sense to move to another country.

If I start my company, say, in Portugal, I can get access to extremely talented programmers for a third of the price relative to Israel. From an economic point of view, there is not a single advantage to stay in Israel, - said Lyad Agmon in an interview with the publication.

The IT sector was once one of the fastest-growing industries in Israel and a point of national pride, as big companies like Waze and Mobileye emerged here, working successfully on the global stage. Mobileye was completely absorbed by Intel for $15.3 billion in 2017.

By July 2018, the able-bodied population in Israel numbers about 4 million people, of which about 270 thousand are already working in the field of information technology. IT executives warn that the market will lack qualified professionals. This problem exists in many countries, but in Israel the situation is aggravated by the great difficulties in obtaining a work visa by non-Jews, as well as the concern of foreigners for their safety, given the aggravation of the Arab-Israeli conflict.

The head of companies does not know about any way to attract talented non-Jewish specialists to work here for a long time. For 20 years we asked the government to introduce such a program, - said Lyad Agmon.

Indian and Chinese programmers, who make up most of the IT migrants in the US and Britain, rarely see Israel as a place to work. In addition to difficulties in obtaining a visa and fears for their lives, specialists are put off by small salaries, which, although growing, are still far from salaries in Western companies.

Technical workers in senior positions can earn about $11.5 thousand a month in Israel, which is four times the average salary in the country. Some age specialists may receive even twice as much. According to the Israeli Central Bureau of Statistics, the average annual salary in the local IT market increased from $61 thousand in 2012 to $72 thousand in 2018.

In order for us to really reach a new level, we need to attract specialists from the Silicon Valley level, "says Jon Medved, head of the crowdfunding platform OurCrowd. - A new wave of IT market growth is inevitable, but we are running out of personnel, and we will not be able to provide enough people to support this wave.

According to a study by the recruiting agency Ethosia, in an attempt to eliminate the personnel deficit, Israeli companies attracted at least 20 thousand developers from Ukraine, India and other countries with relatively cheap labor for outsourcing work, spending about $1 billion on paying salaries to foreigners.^[3]

2017: More than widow's M&A and IPO deals rise to $23bn

The volume of sales (M&A) and initial public offering (IPO) transactions by Israeli IT companies has more than doubled due to the joining of equipment and software developers for self-driving cars Mobileye to Intel Corporation .

According to the Reuters news agency, citing data from the Israel Venture Capital Research Center research agency and the law firm Meitar, in 2017 the sale and IPO of Israeli technology companies reached $23 billion against $10 billion a year earlier. The biggest deal was Mobileye's purchase of American chipmaker Intel. Among other major transactions for the country, the sale of pharmaceutical developer NeuroDerm by the Japanese Mitsubishi-Tanabe for $1.1 billion is noted.

Mobileye Headquarters Building

The number of M&A and IPO transactions among Israeli IT companies decreased by 7% to 112 in 2017, but in monetary terms there was an increase of $100 million. The number of large transactions increased by 60%, and investment attraction also increased, which, according to Meitar partner Alon Sahar, "confirms the thesis that both entrepreneurs and investors are trying to create larger and larger companies."

In 2017, 13 initial public offerings of shares of Israeli IT companies were registered in the amount of $440 million. In 2016, there were no such transactions at all. True, only one company - ForeScout Technologies - raised funds on the Nasdaq exchange, and the rest used alternative sites.

In 2017, Israeli startups attracted more than $5 billion in investments, a record high. Prior to that, this was the amount of $4.8 billion recorded in 2016. In 2015, it was about investments in the amount of $4.3 billion.

In the first nine months of 2017, more than $3.8 billion was raised, and for the remaining four quarters - $1.3 billion. Experts say there could be more real investment as some companies do not disclose financial agreements. Three startups accounted for 60% of the investment.^[4]

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