With the recent escalation of the Middle East conflict in Israel, the world's attention is once again focused on an industry that has increasingly become the economic flagship of its homeland. Now, its employees find themselves on the front lines of a devastating war. Similar to the situation in Ukraine, it's often young tech companies that provide the reservists of the appropriate age who are now mobilized by the Israeli government. In most Israeli startups, it's estimated that between 10 and 30% of the workforce will be affected by the call-up, as Aviad Eyal, Co-Founder and Managing Partner of the London-based venture capital firm Entrée Capital, estimated in an interview with the "Wall Street Journal." Some reports even suggest that around half of the workforce is affected. Even Israeli VC investors themselves have been conscripted or have volunteered for military service.

At the same time, these companies are striving to keep their businesses running despite their employees' military service. "I have a weapon on my lap, I have a helmet on my head, and I wear a vest, but I have to wait for half an hour ... so I work for half an hour", quotes the "Washington Post" the CEO of an Israeli tech startup. It's precisely this attitude that gives hope to the tech industry that the ongoing war won't lead to an even more substantial and prolonged decline in tech investments than has already been witnessed in recent times.

According to the IVC Research Center and VC firm Viola, funding in Israel in the first six months of the year dropped by more than 70% compared to the previous year, totaling just over $3 billion. This decline is considerably more pronounced than in the rest of the world. Consequently, despite having the world's highest number of startups per capita and a high-tech sector that contributes 18% to the country's GDP, the nation has now slipped to the 10th place on the global ranking, a notable decline from its prolonged position at 5th place.

This drop is attributed to the fact that the self-proclaimed "Startup nation" recently had to contend with more challenges than just general economic uncertainty, which has pushed investors worldwide to adopt a more defensive stance. First and foremost, there is the controversial judicial reform initiated by Prime Minister Benjamin Netanyahu, which led to months of mass protests and significantly unsettled the tech industry. Based on the results of a survey by the nonprofit organization "Start-up Nation Central," nearly 70% of Israeli startups had made preparations by the end of July to potentially relocate parts of their business abroad. Additionally, around one in four startups had withdrawn cash reserves from the country by that time. The turmoil also led to a significant devaluation of the Israeli Shekel. And if that wasn't enough, a crucial source of funding from the United States had disappeared with the collapse of the Silicon Valley Bank in March.

The large-scale attack by the Hamas terrorist organization last weekend adds to these challenges, overshadowing everything that came before. Many in the industry are realistic about the near future, saying that it's difficult to imagine significant deals happening during the ongoing conflict. Avi Hasson, the CEO of Startup Nation Central, notes: "While we are in the midst of a war, it is difficult to imagine that larger deals will take place." He, along with many other experts, remains hopeful that the tech ecosystem will once again be able to recover from the military conflict with the Palestinians in the long term. Hasson further states that the industry has already gained investors' trust on this matter. "I don't see investors losing faith in Israel so quickly," he adds.

Whether this will be the case remains to be seen. On social media, many venture capitalists have in a unified statement expressed their solidarity with the country and advocated for supporting the local startups.