Israeli high-tech has never had a year like this. The wealth that has fallen into the laps of industry employees in 2021 was unprecedented, and turned tens of thousands of workers into millionaires. In past years, there was talk of fantastic payouts to individuals, but these were mostly entrepreneurs and senior executives at companies following an IPO or acquisition. In the last year or two, the big money has been trickling farther down, and has begun to flood the level of salaried employees with options.
The numbers sound crazy, certainly for a small country like Israel. Since the beginning of the year, more than 80 privately-held Israeli high-tech companies have been acquired for close to $10 billion, and more than 20 companies have been floated on Wall Street, raising about $11 billion. In addition, fundraising at privately-held Israeli high-tech companies crossed the $20 billion mark this year, and the number of unicorns rose sharply to around 60. Most of the capital in these deals goes to the founders, but the companies, which must fight to retain their talented employees, have found ways to enable them to get rich even before the company is sold or goes public. Secondary transactions allow them to exercise their options by selling them to an existing investor.
In a recent interview with "Globes," Odelia Pollak, CEO of ESOP, a subsidiary of Excellence Investment House and Tal Dori, CEO of IBI Capital - the people who manage 90% of the options for high-tech workers in Israel - said, "This is just the beginning. The effect of these seismic shifts isn’t yet clear. These people have only recently received, or are about to receive, these sums in their accounts, they’re not used to being rich, they’re salaried employees, but salaried employees some of whom have a great deal of liquid cash in the bank. It will take time for the effect to be felt, but there’s no question that the phenomenon will cause even more powerful shock waves than what we’re seeing now."
Dori revealed that IBI Capital, which manages about half of the market (in financial terms), has transferred more than NIS 1 million each to over 9,000 employees since the beginning of 2020. Double that amount and you get almost 20,000 new millionaires.
And as mentioned, this is just the beginning. ESOP and IBI together hold another $30 billion worth of options that have not yet been exercised. "It’s a game-changer," Dori said. "You see it everywhere. Of course, it’s a factor in the rise in real estate prices, which is directly related to the fact that there is a population group with a lot more money."
The budding influence of the new wealth on Israel’s socio-economic fabric can already be felt. The rise in home prices and rents in the central region is perhaps the most noticeable change, but there has also been a huge spike in luxury car purchases, and prices are skyrocketing in a variety of sectors, from restaurants to recreation. Everything is getting more expensive, socio-economic gaps are widening - and there are people with money to burn. As with gentrification, this new phenomenon has already priced quite a few die-hard Tel Avivians out of the market. The city, recently named the world’s most expensive, is no longer affordable. While it may not be possible to claim that this wealth comes at the expense of other socio-economic strata, as the money derives mostly from foreign investment, it absolutely does drive price increases that affect the general public, and widens the socio-economic gap.
Recently, a figure was published that came to the surprise of no one. 76% of the graduates of Talpiot, the elite IDF technology training program, reside in the central region. In general, entrée to units like Talpiot and intelligence unit 8200 - where high-tech talent is bred - has been very limited when it comes to residents of Israel’s periphery.
The industry's rapid growth has given rise to a situation where there are never enough workers, and the battler for the most talented engineers has become a brutal competition over who can offer the best wages and conditions. A partial solution may lie in the periphery. Educating, training, and absorbing wider segments of the population into high-tech can allow the industry to continue to grow - and also slightly narrow the increasingly insane socio-economic gaps.
Published by Globes, Israel business news - en.globes.co.il - on December 30, 2021.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.