Israeli innovative startups struggle for growth amid inflation

Israel Materials 6 February 2023 03:37 (UTC +04:00)
Israeli innovative startups struggle for growth amid inflation

The year 2022, during which inflation in Israel hit its highest level in 20 years, was harsh for innovative startups, Trend reports citing Xinhua.

According to the Israeli Central Bureau of Statistics, the annual inflation in Israel reached 5.3 percent in 2022, the highest since 2002.

"A kind of vicious circle was created," Gad Lior, senior analyst for Yedioth Ahronoth daily newspaper, told Xinhua, adding "as the prices rise, so does the interest rate, so the economic situation of some Israelis is less good."

Bank of Israel, the country's central bank, has raised the base interest rate seven consecutive times since April 2022 to curb inflation. The rise in interest rates made financing more difficult for young startups.

"By summer of 2022, Israeli high-tech companies started to feel the pressure economically and started to do different rounds of layoffs," due to economic concerns and the crisis in Ukraine, Jennifer Schwarz, executive director of EcoMotion, a startup community in Israel, told Xinhua.

Most startups and investors started to be more conservative in 2022, with fewer investments and more layoffs, she said.

According to a report jointly published by the Israeli IVC Research Center and Bank Leumi, hi-tech companies in the country raised a total of 14.95 billion U.S. dollars in 2022, a sharp decrease of about 42 percent from the previous year.

Young startups are trying their best to attract investors to survive, said Eitan Kyiet, CEO of Road2, a startup platform in Haifa, northern Israel. However, amidst inflation, investors are more willing to leave their money in the bank.

In the meantime, some industry insiders see a positive prospect amid the current situation.

"Companies are going to be more efficient and focus on their core business rather than investing in things that are not bringing in value," said Yaron Golgher, CEO and co-founder of AI wealth tech company I Know First. "Of course, it's bad when people are losing their job, but companies are going to be more efficient."

Thanks to the crisis, companies are focusing on what they must have, disintegrating the fluff, and switching their pivots to find the right direction of development, said Kyiet.