Technology companies in Israel are facing increasing financial pressures that threaten their survival, as a result of the continuing decline in the value of the dollar against the shekel. The economic newspaper “Globes” reported that this situation puts companies before difficult choices regarding the workforce, because they rely mainly on external financing in dollars while paying their salaries and expenses in the local currency.
Data showed that companies that raised their funding in dollars over the past four years saw their real value continue to decline.
According to the newspaper’s estimates, any company that raised $100 million a year ago lost about $13.5 million of its purchasing power allocated for salaries and expenses inside Israel as a result of the exchange difference alone. This loss rises to $15.4 million for companies that completed their financing rounds two years ago, making previously established budgets unrealistic.
Huge sector under the drainage guillotine
The technology sector makes up 10% of Israel’s workforce and is the main driver of the state’s treasury through income taxes. However, the sector suffers from structural weakness, as most of these companies remain operationally “loss-profit” and completely dependent on foreign investments, while the salaries of R&D engineers represent a significant burden, paid in shekels.
Economists warned that the continued strength of the shekel, in light of possible US trends to weaken the dollar globally, may prompt international companies to close their operations or reduce employment in Israel, with the cost of labor rising by up to 20%.
Difficult choices: layoff or transfer abroad
Analysts believe that the most dangerous impact lies in the short “financial runway” of companies, that is, the period during which they can operate before needing new financing.
With actual liquidity shrinking, departments have no choice but to rethink the structure of expenditures. Yossi Vinitsky from the Stage One Fund pointed out that salaries in Israel are among the highest in the world, and that the available solutions have become limited to laying off employees or transferring jobs abroad to reduce costs.
Dependence on the outside and lack of solutions
Venture capital funds in Israel rely 90% on external funding sources, 70% of which comes in dollars from American investors, with no investments from local financial institutions.
Also, “currency hedging” operations are no longer a sustainable solution due to the high cost of insurance options and annual commissions, which increases the financial burdens instead of relieving them, and puts the market valuations of companies listed on the Nasdaq stock exchange under constant selling pressure.
(Israeli press)
