2021 Entrepreneurial Activity Review

In 2021, Israel’s tech startups raised over $25 billion in capital funding, a record for the country. This was accomplished, of course, during a global pandemic, when digital technology investment soared as a result of new business demands. Yet, despite the surge in this one industry, most Israeli entrepreneurs (and potential entrepreneurs) have experienced a more mixed recovery from 2020. As a top-line concern, many Israeli households are still feeling the economic impact of COVID-19. In 2021, 43.1% of Israelis said their household had lost income as a result of the pandemic, third highest among GEM Level A economies and only a slight improvement from 42.2% in 2020. While the economy is improving, with GDP expected to grow around 7% this year, the reality is many Israelis are still struggling with the economic impact of COVID-19, which may reduce entrepreneurial opportunity in the coming years. Other signals point to a mixed entrepreneurial recovery from COVID-19. Israel’s TEA rate did improve, to 9.6% in 2021, from 8.5% in 2020.

While this is certainly positive evidence that more Israelis are starting new businesses in an improving economy, this rate is still low compared to previous years when the country’s TEA rate stayed between 11% and 12% from 2015 to 2019. Thankfully, it appears that many of these entrepreneurs are feeling a bit more confident in their ability to adapt to the pandemic. Among TEA respondents, 40.9% said it was more difficult to start a business than in the previous year, which was an improvement over 63% in 2020. While the 2021 rate is still relatively high, likely due to the continued economic drag of the pandemic, it is moving in the right direction. Furthermore, 50% of those starting or running a new business saw new opportunities as a result of the pandemic, showing that many of these entrepreneurs are considering the new business realities of the moment, hopefully providing them with the best strategy for sustained growth. 

However, policymakers will be most concerned with the general population’s entrepreneurial attitudes, which were low in both 2020 and 2021, despite some of the country’s more visible entrepreneurial success stories. While the rate of knowing someone who started a business was high in 2021, the rates of those who saw good opportunities to start a business, thought it was easy to start a business, or said they had the skills to start a business, were among the lowest for GEM Level A economies. Addressing this will take gradual improvements in education and government prioritization, among other policies to improve perceptions.

2021 Framework Conditions Review

Perhaps unsurprisingly given the low entrepreneurial attitudes among the general Israel population, experts gave the country low marks on its governancerelated framework conditions. On Government Policy: Support and Relevance, experts gave a score of 3.4 in 2021, lowest among GEM Level A economies and a decline from 3.9 in 2020. Similarly, the condition Government Entrepreneurial Programs received a 4.1 score this year, also lowest among GEM Level A economies, down from 4.6 in 2020. These scores reflect the low prioritization the state gives to new Israeli businesses, even as some of its most successful startups receive international acclaim and funding.

The country’s market burdens also received low scores with, in particular, Ease of Entry: Burdens and Regulation receiving a 3.9 score, lowest among GEM Level A economies. This reflects a strong bias towards large, established companies which makes it difficult for new firms to compete. Yet, despite conditions that may constrain some entrepreneurship in Israel, many Israelis are willing to take the risk and start a new business. This is clear by the 8.0 score experts gave on the condition Social and Cultural Norms, highest among GEM Level A economies.