‘A real disaster’ - Israeli tech leaders warn startups are moving abroad, threatening country’s economic future

There are growing concerns that Israel’s tech sector – one of the country’s main economic drivers – is increasingly moving abroad. Longtime investor in Israeli startups Adam Fisher, a partner at U.S.-based investment firm Bessemer Venture Partners, voiced those concerns at a recent tech conference in Tel Aviv organized by venture capital firm Fusion and the Pearl Cohen Zedek Latzer Baratz law firm. The gathering drew some 300 venture capitalists, startup founders, and entrepreneurs.

He warned of what he described as a “virus” of Israeli founders registering their companies in the United States.

“More than 80% of Israeli-founded companies are choosing to register in the US [compared with about 20% in 2022],” he said, adding, “This is a real disaster, and this is the main issue for the industry that worries me right now.”

While the trend began in early 2023, it has accelerated since Hamas’ attack on Israel. Several conference participants, including Fisher, said the shift is driven by Israeli entrepreneurs’ perception that foreign investors may avoid companies registered in Israel—a concern they stressed is not grounded in reality. Fisher said he had “not heard about any US venture capital fund which is not prepared to invest because the company is registered in Israel.”

“It is almost like a reflex,” he said. “Israeli founders are acting out of a gut feeling that US or other foreign investors will not invest in an Israeli entity.”

Serial entrepreneur Gigi Levy-Weiss, a general partner with the venture capital firm NFX says he has yet to encounter a foreign investor who decided against funding a company because it was registered in Israel.

“This is fiction and we need to fight it,” Levy-Weiss said.

The decision by Israeli entrepreneurs and founders about where to incorporate their business has implications for future activity of the startup, including the location of its main assets, intellectual property, centers for research and development, sales and management operations, and ultimately where it pays its taxes.

Fisher warned that Israel would lose if the trend continues and that it could have far-reaching economic repercussions for the state.

“We are stealing taxes from the next generation, that is, from our children and grandchildren, without noticing,” Fisher cautioned and called on the government to create incentives to encourage incorporation in Israel and to keep companies and tech talent in the country.

“No one worries about this in Jerusalem. If we won’t find the incentives for companies to register in Israel, we will find ourselves in a serious problem,” he said.

Israel’s tech sector is responsible for driving the country’s economy, accounting for 20% of GDP and for approximately 30% of payroll taxes collected by the government. It employs roughly 11% of the country’s workforce.

In 2024, a study found that the Israeli tech sector contributed more than one-third (36%) of Israel's income tax payments and 24% of all tax revenue in 2021. At the time, the CEO of the Israel Innovation Authority, Dror Bin, called on the government to protect the tech sector in financially difficult periods.

“The insights from this analysis reinforce the importance of government action to protect the sector and ensure its continued growth, even during economic slowdowns,” Bin stated.

However, the threat to Israel’s tech sector is twofold. According to a report released this week by the Israel Advanced Technology Industries (IATI), 53% of multinational companies operating in Israel – including Apple, Meta, Microsoft, Google, Amazon, and Nvidia – have seen an increase in relocation requests from Israeli employees, a trend that could, “over time, harm the local innovation engine and Israel’s technological leadership.”

“Without active steps by the state to create regulatory and geopolitical stability, there is concern about gradual erosion in the stability of the local ecosystem,” IATI warned.