Highlights:

• 45% of new Israeli tech startups incorporated abroad in 2025, up from 20% in 2022.

• The U.S., particularly Delaware, is the preferred destination for incorporation.

• Political instability and judicial reforms in Israel are significant contributing factors.

• Industry leaders express concerns over the long-term impact on Israel’s high-tech ecosystem.

A Shift in the Startup Landscape

In 2025, nearly half of new Israeli tech startups chose to incorporate abroad, a significant increase from 20% in 2022. This trend, identified by the Israel Advanced Technology Industries (IATI), underscores a growing shift in the startup ecosystem. The United States, particularly Delaware, has become the preferred destination for incorporation, offering favorable regulations and policies that attract tech companies.

Political Instability as a Catalyst

The surge in startups incorporating abroad began in 2023, coinciding with political instability in Israel due to proposed judicial reforms. Although these reforms were later shelved following the October 7 Hamas attacks and the ensuing conflict in Gaza, the trend has persisted. Many startups continue to establish themselves in Delaware, drawn by its business-friendly environment and the ease of raising capital in the U.S.

Economic Implications for Israel

High-tech is a cornerstone of Israel’s economy, contributing approximately 20% to the GDP, 15% of employment, and more than half of all exports. The relocation of startups abroad raises concerns about the erosion of Israel’s high-tech ecosystem. Dan Shamgar, chairman of the IATI’s lawyers and accountants committee, warns that this shift could gradually diminish economic activity within Israel and tarnish the country’s high-tech brand.

Investor Behavior and Risk Management

Venture capital funds operating in Israel report increased difficulties due to the country’s political climate. Approximately 65% of these funds have expressed concerns, with about 30% of Israeli companies and startups relocating significant activities abroad. Investors are closely monitoring this trend, as the relocation of activities may worsen in the coming year, potentially impacting the availability of funding for Israeli startups.

Looking Ahead: Potential Risks and Opportunities

The ongoing trend of Israeli startups incorporating abroad presents both challenges and opportunities. While the U.S. offers a conducive environment for tech companies, Israel risks losing its status as a global tech hub if the current trajectory continues. Industry leaders urge Israeli policymakers to implement incentives that will encourage startups to remain within the country, thereby preserving the strength and reputation of Israel’s high-tech sector.

As the situation evolves, stakeholders in Israel’s tech ecosystem will need to navigate these changes carefully. The balance between fostering a favorable business environment and maintaining national economic interests will be crucial in determining the future of Israeli high-tech.