Iranian missiles weren’t the only things booming in Tel Aviv in 2025. Despite ongoing conflict and domestic turmoil, the year that ended Wednesday saw the value of Israeli tech merger and acquisition deals reach record heights. Foreign investors scooped up local innovation at an unprecedented pace, and the Tel Aviv stock exchange soared repeatedly to new all-time highs, outperforming many global peers.
However, beneath the surface of these impressive financial gains lies a growing anxiety. While optimism abounds regarding the resilience of the sector, a quiet exodus of talent and tax revenue is fueling concern that the country’s main economic driver may be slowly relocating its center of gravity abroad.
Why It Matters
The technology sector is the undisputed engine of the Israeli economy. It accounts for nearly 20 percent of the nation’s GDP and is responsible for approximately 30 percent of the payroll taxes collected by the government. The industry also employs about 11 percent of the national workforce.
If the trend of incorporation abroad continues, the state risks losing its most essential funding source for future generations. As companies shift their registration to the United States and other regions, the intellectual property, management operations, and ultimately the tax revenues associated with their success leave with them.
What to Know
A disconnect has emerged between the success of the tech ecosystem and the broader Israeli economy, which has been stunted by wartime call-ups, airport closures, and geopolitical isolation. According to a survey conducted by venture capital firm Fusion, investor sentiment has rebounded significantly. The poll found that only 6 percent of respondents viewed political and security uncertainty as the primary challenge for investors, a steep drop from 43 percent the previous year. Furthermore, 74.5 percent of respondents expressed optimism about Israel’s future.
Despite this bullish outlook, the structural reality of the startups is changing. Adam Fisher, a partner at Bessemer Venture Partners, noted that more than 80 percent of Israeli-founded companies are now choosing to register in the U.S., compared to just 20 percent in 2022. This shift accelerated in 2023 due to judicial reform uncertainties and was further compounded by the war with Hamas.
The impact extends to established multinational corporations as well. A new report by the Israel Advanced Technology Industries (IATI) revealed that 53% of multinational companies operating in Israel experienced an increase in relocation requests from local employees. These multinationals, including giants like Google, Microsoft, and Nvidia, have historically been anchors for the local ecosystem, responsible for about 80 percent of M&A volume over the last five years.
What People Are Saying
Industry leaders are sounding the alarm regarding the “silent disappearance” of investments and the migration of corporate registration.
“We are stealing taxes from the next generation, that is, from our children and grandchildren, without noticing,” Adam Fisher told a gathering of investors at the Azrieli Sarona Tower. He described the trend as a “virus of Israeli founders registering companies as American,” warning that “no one worries about this in Jerusalem.”
Yifat Oron, a senior managing director at Blackstone, highlighted the nuanced reality of foreign investment. While interest remains high, she noted that some limited partners are hesitant. “Let’s not be naïve, there are LPs who won’t touch investments in Israel, at this time,” Oron said, adding that some U.S. pension funds are quietly preferring less complicated investments.
However, others believe the shift is driven more by fear than necessity. Serial entrepreneur Gigi Levy-Weiss of NFX argued that the idea that foreign investors require non-Israeli registration is “fiction and we need to fight it.” He urged investors to encourage entrepreneurs to keep their entities domestic.
What Happens Next
The immediate focus for industry leaders is pressuring the government to intervene. Both investors and founders are calling for new incentives to encourage incorporation within Israel and to retain top-tier talent. Without policy changes, experts warn that the “startup nation” could evolve into a nation of satellite offices for American-headquartered firms.
Additionally, the IATI report indicates that some multinational companies are currently examining the transfer of investments and activities to other countries after facing supply chain disruptions during the war. If these temporary shifts become permanent, the long-term technological leadership of the country could face significant erosion.
