The great high-tech shift: Israel’s startups grow, but not necessarily in Israel
New report reveals expanding overseas operations, rising relocation, and a shrinking share of local employment.
The Israel Innovation Authority's 2026 State of High-Tech Report, which reviews developments in 2025, presents a complex picture of the industry's trajectory. Alongside an impressive recovery in activity and investment, long-term trends of shifting operations abroad are intensifying, employment in Israel is declining, and the sector's structure is undergoing profound changes driven by the artificial intelligence revolution.
The high-tech industry, which has repeatedly demonstrated its resilience in periods of uncertainty, recorded a 30% increase in fundraising in 2025 compared to the previous year, reaching $14.6 billion, the highest annual total since the boom years of 2021 and 2022. Technology companies accounted for roughly half of Israel's economic growth during the year, contributing 1.44 percentage points of the country's overall 2.9% GDP growth. The industry's share of GDP reached a record 18.3%, equivalent to NIS 352 billion.
High-tech exports totaled approximately $85 billion, accounting for 58% of all Israeli exports. Data from the first quarter of 2026 indicate that investment activity remains strong, with startups raising approximately $3.36 billion.
Despite these strong macroeconomic figures, the report highlights concerns about the industry's maturation and the continued expansion of Israeli companies overseas. While approximately 69% of employees at private Israeli technology companies were based in Israel in January 2019, that figure had fallen to just 62% by March 2026. Most of the growth in overseas employment has been recorded in the United States, both in support, operations, and sales functions and in core positions such as research and development and product management.
Another trend worrying the Innovation Authority is the gradual relocation of decision-making centers away from Israel. Since 2019, the proportion of C-suite executives based in Israel has declined by 9.6%, while the share of senior executives located in the United States has increased by 5.8%. At the same time, R&D activity is increasingly being shifted abroad, with Israel's share of development work eroding as activity expands in Eastern Europe and the United States.
Outgoing Innovation Authority CEO Dror Bin told Calcalist that Israel remains among the world's leading technology hubs. According to Bin, Israel ranks second globally in the field, behind the three major U.S. technology centers but ahead of cities such as London, Paris, and Los Angeles. Nevertheless, he acknowledged the ongoing migration of activity overseas.
"Between 2019 and 2026, we have seen approximately 7% of activity move abroad among private technology companies, which are expected to maintain most of their operations in Israel," Bin said. According to him, the COVID-19 pandemic, the war, and the need for operational resilience encouraged companies to diversify their activities and establish additional teams outside Israel.
He noted that the proportion of companies concentrating most of their operations in Israel has fallen to roughly 50%. While the majority of development work is still conducted domestically, Bin warned that the trend carries significant long-term implications.
"This is not a positive phenomenon, and we are not happy about it," he said, while adding that the economic impact has not yet become clearly visible. According to Bin, it is difficult to predict how far the trend will go, but as Israeli companies grow larger and more global, a greater share of their operations is likely to be conducted outside Israel.
The internationalization trend is also reflected in relocation data. A joint survey by the Innovation Authority and Zviran found that 35% of technology companies reported an increase in employee requests to relocate abroad at the end of 2025, while 19% reported a rise in the number of employees actually sent overseas. Data from the Central Bureau of Statistics showed a 14% increase in the number of high-tech employees leaving Israel for extended periods during the summer of 2024, although 2025 saw some moderation compared with the peaks recorded immediately after the outbreak of the war.
One of the report's most striking findings concerns the impact of artificial intelligence on the labor market. For the first time in a decade, the number of R&D employees in Israel declined, with approximately 3,500 development jobs eliminated. The share of R&D workers in the industry's workforce fell from 51% to 49%.
At the same time, roughly 15,000 employees were added in product-related roles, raising their share of total industry employment to 24%.
Bin argues that this shift is a direct consequence of the AI revolution.
"The output of the high-tech industry is growing rapidly, but the number of employees has remained largely unchanged for three to four years. That means output per employee has increased dramatically," he said.
According to Bin, AI tools are boosting productivity, reducing the need to expand R&D teams, and enabling product managers to perform tasks that previously required developers.
The impact of AI is also evident in entrepreneurship. After a decade-long decline in the number of new startups, approximately 775 new companies were established in 2025, compared with 750 in 2024 and 743 in 2023.
Artificial intelligence has also become the dominant investment theme. According to the report, between 32.5% and 35% of all investments in Israeli high-tech were directed toward core AI companies. Cybersecurity, enterprise software, and fintech together accounted for more than 60% of total industry investment.
The report also points to a shift in the balance of power between software and hardware. In 2025, hardware-related industries expanded by 20.7%, adding approximately NIS 16 billion to GDP within a single year. Employment in hardware industries increased by 8.9%, while R&D positions in the sector surged by 11.9%. By contrast, software industries recorded a 3.5% decline in R&D employment.
Bin attributes the trend to growth in defense technology, quantum computing, and semiconductor-related activities.
Hardware continues to demonstrate a clear productivity advantage. Annual GDP per employee reached approximately NIS 894,000, around NIS 100,000 higher than in software services. Across the broader high-tech industry, GDP per employee stood at approximately NIS 827,000 annually, significantly higher than in financial services (NIS 721,000), commerce (NIS 283,000), or construction (NIS 166,000).
The report also warns about the impact of the strengthening shekel. Because approximately 79% of high-tech output is export-based, the decline in the dollar's value to an average of NIS 3.45 in 2025 has hurt profitability.
According to the report's estimates, the exchange-rate decline alone, from NIS 3.7 per dollar in 2024 to NIS 3.45 in 2025, reduced high-tech output by approximately NIS 21 billion.
"A company that raised money and believed it had two years of runway suddenly discovers it has only a year and a half," Bin said. He argued that the issue represents a significant challenge requiring consideration of macroeconomic policy responses.
At the same time, 2025 was a record year for exits. Total transaction value reached approximately $84 billion, including major deals involving Wiz, CyberArk, and Armis. Of the 198 exits recorded during the year, approximately 49% involved acquisitions by other Israeli companies, highlighting the growing maturity of the local technology ecosystem.
The value of IPOs surged 319% to $1.6 billion, while the number of multinational corporations operating in Israel increased to 511.
However, the venture capital market became increasingly concentrated. The number of funding rounds continued to decline, and small rounds of up to $10 million fell to their lowest level in a decade, while an increasing share of capital was concentrated in a limited number of mega-rounds for mature growth-stage companies.
Against this backdrop, Israeli high-tech has recently entered a new wave of layoffs. Wix announced plans to cut approximately 1,000 jobs, roughly 20% of its workforce. The company employs approximately 5,200 people, about 60% of whom are based in Israel.
Amdocs is expected to eliminate between 2,500 and 3,000 positions from its global workforce of 29,000 employees, including hundreds in Israel. Cybersecurity company SentinelOne announced plans to cut approximately 8% of its workforce, affecting around 230 employees globally, including some in Israel.
Jerusalem-based unicorn Lightricks is preparing another round of layoffs as it adapts to the era of AI-generated content. Cybersecurity company BigID, which was valued at approximately $1 billion only two years ago, has announced plans to lay off around 150 employees, more than 20% of its workforce.
Sports media company Minute Media has launched a reorganization that includes laying off approximately 12% of its workforce, around 60 employees out of roughly 500 worldwide.
Globally, the most significant workforce reduction has come from Meta, which is cutting approximately 9,000 jobs worldwide, including more than 100 employees in Israel. According to estimates, many of those affected are developers. The company has also reassigned hundreds of employees to AI-focused teams as part of its broader artificial intelligence strategy.
Payments giant PayPal is also expected to announce layoffs in Israel, and potentially internationally, in the coming weeks.
