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Overwhelming majority of new Israeli startups will incorporate in USA, according to survey

Israel Innovation Authority believes this development could be attributed to judicial reform

A view of the Herzliya business district in central Israel, containing major global high-tech company offices. (Photo: Shutterstock)

A large number of new Israeli start-ups are choosing to incorporate in the United States.

In 2022 the figure was 20%, whereas the figure is now some 80%, according to a new Israel Innovation Authority (IIA) survey cited by Reuters. This represents a whopping 400% increase.

IIA Chairman Ami Applebaum said the development could be attributed to the judicial overhaul, which he said was creating uncertainty for entrepreneurs.

“The fact that you are shaking up the judicial system puts Israel in a very high level of uncertainty and investors don’t like uncertainty,” Applebaum said.

In addition, 8% of Israeli start-up tech companies are reportedly beginning to transfer their headquarters abroad, while 29% say they intend to do so soon.

“It’s just a very high level of uncertainty,” said Ian Amit, who is in the process of registering his artificial intelligence cloud security company in Delaware, a state that attracts Israeli start-ups because of its tax benefits; low corporate taxes and zero state sales tax.

“It mainly really revolves around corruption and uncertainty of what system is there to protect me as a business, from a tax perspective, from a legal perspective or an intellectual property perspective,” Amit said.

Private funding by Israeli start-ups also dropped in the first half of 2023 to its lowest level in five years according to Start-Up Nation Central, a non-profit organization that “connects Israeli innovation to the world." Health tech and fintech experienced the greatest drop, according to the organization.

By contrast, private funding trends in the United States are stabilizing when compared to Israel.

“The uncertainty and internal changes in Israel together with global economic changes are prominently expressed in the activity of the Israeli ecosystem and reflect a significant slowing down and an ebb in activity,” said Yariv Lotan, vice president of Integrated Marketing at Start-Up Nation Central.

“This sharp drop stands in opposition to the stable trends in funding and venture capital seen in the U.S.”

The All Israel News Staff is a team of journalists in Israel.

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