A quiet shift is underway in the Startup Nation
Israeli startups have always had their own way of doing things: sales and marketing teams in the United States, development firmly rooted in Israel. 🇮🇱 It was never written down anywhere, but everyone in the industry followed it like it was law.
For decades, not even the worst security crises managed to shake that structure. Israel’s tech ecosystem built a global reputation precisely by keeping production running no matter what was happening around it. Bombings, border tensions, military mobilizations — none of it was enough to pull an Israeli developer away from the keyboard. That resilience became almost a cultural trait of the sector, something international investors and clients learned to count on as a given.
In October 2023, when it became clear Israel was entering a prolonged conflict, the tech sector rallied around a slogan that went global: Israeli Tech Delivers – No Matter What. The phrase was even displayed on the Nasdaq billboard, right in the heart of Times Square in New York. It was a collective declaration, almost a public oath that the ecosystem wouldn’t waver, regardless of how big the crisis ahead turned out to be.
Two and a half years later, though, that promise is being tested in ways nobody expected. The war hasn’t stopped, reservists keep getting called up, airspace continues to be shut down frequently, operating costs have risen between 10% and 15%, and a survey by the Israel Innovation Authority found that 42% of startups have already experienced significant development delays. Twenty-two percent said they had significantly postponed development milestones or product launches. These numbers aren’t just statistics — they represent lost contracts, delayed funding rounds, and clients who started looking at other solutions.
The result? For the first time, the Israeli tech ecosystem is openly discussing the possibility of moving parts of development outside the country — and in some cases, it’s happening from the moment a startup is born. 🚀
What’s changing in the DNA of Israeli startups
For a long time, concentrating development in Israel wasn’t just a logistical choice — it was a competitive advantage. Over decades, the country developed one of the highest densities of software engineers and cybersecurity specialists in the world. Much of that came from Israel Defense Forces intelligence and technology units, like the famous Unit 8200, which functions as a kind of natural accelerator for technical talent. Leaving that environment to develop software somewhere else sounded, to many, like giving up one of the industry’s greatest assets.
But the reality of a prolonged war is forcing a reassessment of that logic. When a senior engineer gets called up as a reservist for weeks or months at a time, the impact on a product roadmap can be devastating. One month after the war began, no less than half of surveyed companies reported that more than a quarter of their employees were absent due to reserve duty or lack of childcare. Only a tenth said their workforce hadn’t been affected. Fast-cycle startups that rely on short sprints and continuous delivery simply can’t absorb that kind of absence without consequences. And since call-ups are unpredictable, planning gets compromised in a way that no project management tool can fix.
Add to that rising costs driven in part by the strengthening of the shekel against the dollar, airspace instability that complicates travel to meetings with investors and clients, and a growing perception of risk from international funds, and the picture that emerges looks very different from the one that existed before October 2023. What used to be a stable and predictable setup has become a red flag in venture capital due diligence. Some investors started asking questions they never would have before: where is your development team located? What’s the contingency plan if half the team gets called up?
Real-world cases that show the scale of the impact
You don’t have to look far to find real examples of what’s happening. U.S. government officials, for instance, instructed development centers of multinational corporations operating in Israel not to open their offices following Iranian threats to attack those locations. While the centers in Israel stayed closed, work and projects were transferred to more stable regions — and the question no one wants to ask out loud is whether those projects will come back when the war ends.
An Israeli executive at Intel gave a glimpse of the operational reality: the war broke out at a sensitive moment for one of the company’s important projects. Hundreds of employees were called up for reserve duty and, because of the labor shortage and the urgent need to deliver on time, part of the work was transferred to the company’s development teams in India. According to that executive, the core of the project stayed in Israel and Intel met its deadlines, but the precedent was set.
Receive the best innovation content in your email.
All the news, tips, trends, and resources you're looking for, delivered to your inbox.
By subscribing to the newsletter, you agree to receive communications from Método Viral. We are committed to always protecting and respecting your privacy.
Wix, one of Israel’s best-known tech companies, acknowledged that development of an important AI-based design product was delayed and ended up launching a full quarter behind schedule, specifically because of reserve duty among the development team.
Beyond workforce challenges, flight restrictions also caused operational headaches, limiting access to industry events and complicating the import of materials. Thirty-five percent of companies reported significant commercial damage as a result of those restrictions. 📉
Where the development work is heading
The most common destinations where Israeli startups are sending parts of their development operations include New York, Portugal, Canada, Poland, and India. New York has emerged as the preferred destination, with more than 500 Israeli-founded or Israeli-led startups already operating in the city. At the same time, around 38,000 Israelis have left the country over the past three years.
Portugal, in particular, has been coming up a lot in these conversations — its time zone is compatible with Israel and most of Europe, the cost of living is more affordable than major tech hubs, and the country has been consistently investing in training tech professionals. Riskified, for example, opened a development center in Portugal in 2023 and has since expanded its operations abroad. Today, only 60% of its employees are based in Israel, compared to 70% at the end of 2022.
Canada offers another attractive proposition. According to Tamir Hay, a partner at PwC Israel who recently moved to New York, a development center in Canada now costs 20% less than one in Israel. In Central Europe and Portugal, costs are even lower.
Poland and other Eastern European countries attract for similar reasons: strong density of technical talent, lower costs than Western Europe, and a tech infrastructure that has grown significantly in recent years. India, meanwhile, was already a classic outsourcing destination for many global companies, and Israeli startups that previously resisted that model are now reconsidering.
The numbers confirm the trend in concrete terms. In 2024, Israeli tech companies hired approximately 5,000 developers outside of Israel, while in the first half of 2025 the number of developers working domestically dropped by about 6%.
Startups that are born distributed
What’s most telling about this shift, though, isn’t the companies relocating existing teams. It’s the startups being born with a distributed structure from day one, without even trying to concentrate development in Israel. That represents a significant cultural break.
New startups like Majestic Labs, Cylake — founded by Nir Zuk — and Dimer Health are already distributing development teams between Israel and the United States. In many cases, non-Israeli founders or relocated executives provide the ability to lead development efforts abroad from the very first steps.
One standout case is Artemis, a recently revealed cybersecurity startup that currently employs 30 people entirely in New York, many of them Israeli, and plans to establish an Israeli development center only at a later stage. The logic has flipped: instead of starting in Israel and then expanding abroad, the startup starts abroad and might come back to Israel later.
More established companies like Forter, Gong, and HiBob have maintained distributed teams for a while now, operating development centers outside Israel. Now, publicly traded companies are accelerating the expansion of their global footprint, following the same path. 📍
Founders are relocating earlier
The shift is also visible among founders themselves. Increasingly, at least one cofounder moves abroad shortly after raising the first round of funding. In the past, that role was typically filled by founders with a more business-oriented profile — the CEO or the head of sales. Now, even technical founders are moving out and building development teams abroad.
Tamir Hay of PwC Israel described the trend in a way that goes beyond the numbers. According to him, houses in Tenafly, New Jersey, have already sold out, property prices have skyrocketed, and the Israelis who arrived in recent months are already looking for housing in the four surrounding towns. At one of the local schools, a regular public school, 40% of the kids in the class are Israeli.
In Hay’s words: more and more companies being created today are examining and, in some cases, actually establishing development centers in the United States. Sometimes those centers are led by Israeli managers who relocated, but most of the workforce is local. It might be a one-off extreme event because of the series of wars, but two years ago there was zero discussion among young startup founders about establishing development activities outside Israel. Now the discussion exists. There are shoots that aren’t a trend yet, but they need to be addressed strategically.
The weight of economic factors
The war isn’t the only factor pushing this shift. The strengthening of the shekel against the dollar has made operations in Israel relatively more expensive, while alternatives abroad have become more attractive from a financial standpoint. As Hay pointed out, on one hand, as Israelis, it’s positive to see the shekel strong during wartime — it’s a good sign for the economy. On the other hand, alternatives abroad are becoming a significant consideration.
Danny Akerman of Key1 Capital raised another less-discussed factor: the fierce competition for talent within Israel. According to him, the entire Sarona area in Tel Aviv creates a FOMO effect — employees are constantly talking to each other about conditions and new companies popping up and recruiting, generating constant turnover. That’s why quite a few companies prefer to look for employees in places with less competition, mainly in Europe.
And there’s one more element entering this equation: artificial intelligence. Hay noted that Israeli human capital is still the big technological differentiator, but because of AI tools, many development processes are becoming increasingly automated. The focus remains on high-quality people, but in the age of AI, fewer of them are needed. That changes the calculation significantly — if you need fewer developers to deliver the same output, the pressure for all of them to be in Israel decreases proportionally. 🤖
Voices of caution in the ecosystem
Not everyone in the industry sees this shift as inevitable or even desirable. Gili Raanan of Cyberstarts argued that distributing development is becoming a practical necessity: as Israeli companies sell increasingly critical platforms to global clients, they can’t risk having key personnel unable to travel or operate freely.
Lior Handelsman of Grove Ventures offered a more cautious take. According to him, opening development activities abroad is a privilege of companies above a certain size. For it to truly work and contribute, you need very strong management abroad and a dominant development group. On top of that, for the cost impact to be meaningful, the company needs to be above a certain scale. Handelsman added: it’s one or two operationally tough months, and it’s not worth the costs, the headaches, and the dispersion. We see that high-tech is delivering its products and that companies are functioning.
This tension between those who see distribution as inevitable and those who consider it an overreaction reflects the ecosystem’s current moment well. There’s no consensus, but the fact that the conversation exists is already a shift in itself.
What this means for the global tech ecosystem
Israel has always been treated as a special case on the global innovation map. The nickname Startup Nation, popularized by Dan Senor and Saul Singer’s book published in 2009, captured the idea of a small country producing a disproportionate number of relevant tech companies. Part of that success was always tied to the geographic concentration of talent and the collaborative culture that formed within that compact environment. Spreading development across other countries doesn’t erase that legacy, but it certainly changes the dynamic that fueled it for so long.
For the global tech ecosystem, this shift opens real opportunities in markets that were on the periphery of the innovation map. Countries that can attract these development teams, maintain adequate infrastructure, and offer a stable regulatory environment have the chance to absorb not just skilled jobs, but also knowledge, product culture, and connections to global investment networks. This kind of human capital transfer is hard to measure in the short term, but it tends to leave permanent marks on the ecosystems that receive these professionals.
During the pandemic, Israel managed to bring talent back from abroad. Today, the trend appears to be reversing, raising concerns not just about jobs, but also about the potential loss of knowledge and expertise accumulated over decades.
Despite this, policymakers remain primarily focused on fundraising and exits, rather than looking at employment trends. According to official data, the number of high-tech workers in Israel has held steady at around 400,000 since October 7, but that number masks deeper shifts in where development work is actually happening.
Major multinationals like Nvidia and Google continue expanding their presence in Israel, reinforcing the country’s enduring strengths as an innovation hub. But startups, more exposed to cost pressures and operational risk, are increasingly looking outward. 🌍
In 2024, Israeli tech companies hired approximately 5,000 developers outside of Israel, while in the first half of 2025 the number of developers working domestically dropped by about 6%.
For Israeli startups themselves, the open question is whether this distribution will weaken or strengthen their product identity. Distributed teams work well when there are mature processes, clear communication, and a well-established product culture. For early-stage startups, where everything is still being figured out, geographic dispersion can be an additional challenge at a time that’s already difficult by nature. The balance between operational resilience and team cohesion is probably the biggest challenge this new model will need to solve in the coming years.
The slogan Israeli Tech Delivers – No Matter What still circulates through the industry, but the no matter what is taking on a new meaning. Delivering, now, might mean delivering from different places, with teams spread across time zones that were never part of the original plan. It’s not exactly what people imagined when the phrase appeared on the Nasdaq billboard, but maybe it’s the most honest version of what resilience means in a context nobody expected to last this long. The question now is whether this is a temporary adjustment to an extraordinary period or the beginning of a more structural shift in how Israeli high-tech organizes itself.
