COVID’s impact on Israel startup finances

The first survey, published in May of 2020, was conducted by Y. Benjamin Strategic Marketing, LeumiTech, Samsung Next, and the law firm Herzog Fox & Neeman. Over 400 Israeli startups participated in it. It covers the impact on issues of hiring, compensation, selling of shares, fundraising, and detailed startup statistics. They can be roughly characterized as being VC funded (61%), having raised less than $10 million, and having fewer than 40 employees. You can register for a free copy of their survey at startup-snapshot.com.

Some key points:

• A full 50% were looking near-term (4 months) to raise bridge funding.
• Running out of funds was the #1 reason for seeking bridge funding.
• 71% froze hiring, fired, or furloughed employees.
• Over 60% planned to reduce wages but increase equity and compensation options.
• 57% saw this situation as an opportunity to restructure their teams.

Overall, most say that it’s taking longer to secure funding while also getting somewhat less funding. Nevertheless, 2020 was a record-breaking year for Israel bringing in over $10 billion in investments owing in large part to startups’ rapid and agile response to the crisis.

COVID’s impact on the office

The second survey, published in November of 2020, was also spearheaded by Y. Benjamin Strategic Marketing in conjunction with Leumitech, Intel Ignite, and Yigal Arnon Law, in partnership with the Zell Entrepreneurship Program and Benson Oak Ventures. Over 200 startups participated in this more in-depth survey on matters of their workforce, sales, product, fundraising, and interaction with accelerators. You can download it here.

Prior to Covid, perhaps 5% of Israeli employees were allowed to telecommute. That’s effectively flipped, with 87% now telecommuting on at least a part-time basis, with 42% doing so full-time.

• 44% of startups either reduced their office space.
• Half of the startups see employee location as less important than before.
• 29% indicate they will rely more upon outsourcing.
• Productivity has remained the same (47%) with a 27 to 26% ratio of gainers vs. losers.
• ‘An overwhelming 85% see it at least somewhat likely that they’ll maintain their WFH stance for at least a year after the Covid crisis ends.

Prior to the lockdowns, Israel lacked at least 15,000 IT personnel to meet demand. While layoffs may temporarily ease access to local talent, Israeli companies increasingly have to compete with their larger international counterparts driving up wages. That’s not likely to change if and when we start returning to normal.

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Extending the startup funding runway by outsourcing

When it comes to software development, location is far less of an issue than experience, technical skill, and actual compensation expenses. The technical skills of Ukrainian software developers rank 5th globally while offering the 2nd greatest value proposition.

Though some companies have outright laid their software development teams off, no one would suggest for you to take that dramatic of a shift with your team. Well, if you’re going out of business or have canceled your software project – you may not have a choice. Many startups are restructuring their teams – gradually transitioning to more outsourcing and/or planning for growth to coincide with the Series A-B-C funding rounds.

Take a look at your funding runway and consider adjustments that you may need to start making now. If your funds dry up, you may have to rely upon bridge funding to help you reach your next funding stage. At that point, there’s only so much you can do to mitigate your expenses while simultaneously proving to investors that you have a team that will get you to your destination. Explore what outsourcing can do for your startup so that if and when you do need to make some adjustments you know what to expect and how outsourcing can benefit your startup.