Advertising and social media companies behind 70% of decline in number of startups

Technological changes on the global level are assumed to be the cause for such a decline, with the demand for solutions in advertising and social media dropping in turn.

 Yoni Zimmermann, a quantum software engineer at Classiq, a startup whose platform companies can use to build quantum applications on for the quantum computer, works on the software platform, in Tel Aviv, Israel, February 2022. (photo credit: Classiq/Handout via REUTERS)
Yoni Zimmermann, a quantum software engineer at Classiq, a startup whose platform companies can use to build quantum applications on for the quantum computer, works on the software platform, in Tel Aviv, Israel, February 2022.
(photo credit: Classiq/Handout via REUTERS)

A steep decline in the number of new advertising and social media companies is the reason for the 70% drop in the number of start-ups in Israel, according to a new study.

Technological changes on the global level are assumed to be the cause for such a decline, with the demand for solutions in advertising and social media declining, which in turn lowered the number of new companies.

The report by the Start-Up Nation Policy Institute (SNPI) and the Israel Innovation Authority points to an alarming decline in new businesses in other sectors as well, due to the multiplicity of options available to potential entrepreneurs, and the difficulty of competing for human capital with large multinational companies.

“Start-ups are a critical source of high-risk breakthrough innovation,” said IIA CEO Dror Bin. “We attribute great importance to maintaining a balance of having growth and mature companies alongside Israel’s need, as an innovation hub, to continue to diversify through new ventures that will lead to innovative technologies in new fields. It is our duty to continue tracking these trends and to nurture seed-stage start-ups in a wide range of developing sectors, to ensure that the industry can continue to advance and develop for the benefit of the Israeli economy.”

The consistent decline in the establishment of new start-ups has been an ongoing concern in the Israeli hi-tech industry since 2016.

Data from SNPI’s central finder innovation business platform shows an average annual decline of 14% in the establishment of new start-ups since then.

Data produced by the IIA, however, shows that this trend had already begun two years earlier. Comparing Israeli numbers to global statistics on new start-ups shows a similar trajectory, with a global average annual decline of 17% since 2016.

“The findings from this study indicate that the downturn in the number of start-ups incorporates two trends: a decline in entrepreneurship resulting from the maturation of the ecosystem and fierce competition for resources, particularly human capital; and a global shift in the ‘hot’ tech sectors that has led to a decline in the number of new companies in advertising and social media,” according to SNPI CEO Uri Gabai. “At SNPI, we will continue to follow these industry trends and assess the policies needed to ensure the Israeli innovation ecosystem’s continued development.”

The report points to the importance of these trends, urging decision-makers to take notice of the decline in entrepreneurial ventures and to continue to track the number of new start-ups and their different sectors, placing special emphasis on sectors with high-risk technology.

However, the report also notes that the threshold that would require wide-scale government intervention has not yet been crossed.