On the Latest “Startup Snapshot” by Y. Benjamin

Quick Summary - More surveys and data are out about how startups and big companies alike are dealing with Covid and an increasingly distributed work environment.

On the Latest “Startup Snapshot” by Y. Benjamin

Y. Benjamin released its third Startup Snapshot in May of 2021 from its survey of over 200 Israeli startups involved and their early stage funding rounds. Founded by Yael Benjamin, they are a team of strategy consultants and graphic designers with their fingers on the pulse of the Israeli startup ecosystem. Their surveys tap into who’s doing what, how they’re doing it, why, and more. You can access the survey at the Startup Snapshot site.

Please note that PerceptionBox has no affiliation with Y. Benjamin or Startup Snapshot. We do, however, regularly read their surveys for valuable insights into Israel’s startup ecosystem.

In the third edition, they track how startups are fairing with investors and how Covid and things like a stronger shekel are impacting startups and funding.

Key Findings:

  • More Israeli startups are closing their funding rounds faster as a result of COVID.
  • Winning funding increasingly depends on teleconferencing (i.e. Zoom).
  • Investors are seeking more control.
  • Israeli companies are outsourcing more – mainly Ukraine, Poland, and India.
  • A larger portion of company teams are outsourced.
  • In-house employees are becoming more like project managers.
  • In-house employees are filling the role of project managers

Distributed work environments, particularly for software developers, have been around to some extent since the dial-up modem. Broadband, mobile, and the gig economy have all helped telecommuting pick up steam. Covid accelerated developer interest in wanting to regularly work from home by at least a decade. Just one of many, the FlexJob survey showing most (2 out of 3) want to continue telecommuting even after the pandemic is over.

This impacts planning for startups and large businesses alike. Another survey by Conference Board of over 230 HR executives indicates nearly 80% will let their employees work from home 3+ days per week after the pandemic, compared to just 26% who did so previously. To this we can add over a dozen faculty members from Harvard Business School also advising about the new normal for the office – and advising to not dismiss telecommuting out of hand.

COVID leading to faster funding rounds

According to the Startup Snapshot, before Covid, 36% of startups were able to close their funding rounds in 4 months or less. Now, 59% are closing within 4 months while 29% are closing in 2 months or less. That’s great news. It owes, in part, to Israel having an awesome startup ecosystem with numerous incubators and accelerators backed by the government. Yifat Oron, CEO of Leumitech, explains why in Y. Benjamin’s report. It can be explained by investment firms also adopting the practices and principles associated with distributed work environments.

More teleconferences and fewer physical meetings

The Startup Snapshot survey found that 76% of startups were involved in up to ten Zoom meetings. Of the total, 41% successfully closed their funding rounds without meeting investors face to face. Yael Benjamin, Robert Cohen, and Tzahi Weisfeld each offer succinct advice for startups preparing to make their pitches in this format. In an upcoming blog post, we’ll offer more detailed suggestions for founders.

Y. Benjamin’s survey also suggests a couple of spin-off consequences to founders having more digital meetings starting in the fundraising stage:

  • An increased willingness to hire locally in markets where they require a presence instead of relocating their offices to major tech hub cities.
  • A greater appreciation for outsourcing, generally – with Ukraine, Poland, and India being the most sought sources for IT staff by Israeli startups.

So, instead of the founder relocating to Palo Alto, Seattle, London, etc., startups are actually hiring someone already there. Even then, they may not even need to set up an office in a tech hub city. As with the “on-demand” business model, access is better than ownership. Simply having someone able to meet and network is what’s most important.

Investors are asking for a greater say in startup decisions

Since the pandemic started, according to the Startup Snapshot survey, investors have started asking for more control in startup decisions, with veto powers on budgetary issues being most significant. Some (7%) also want in on hiring and termination decisions. Obviously, investors want to protect their investment.

The largest line item expense for tech startups is wages for IT specialists and software developers. Most investors in tech startups have been around the block a few times and know that when properly vetted, outsourcing development teams is equal to and often better than hiring in-house development teams.

This is speculation on my part, but it is sensible to think that investors are increasingly inclined to question the value of hiring in-house versus outsourcing. Why hire one in-house software developer when you could potentially outsource with two? Investment firms tend to have partners with experience managing distributed teams to advise startups in how to manage their remote developers efficiently. See a cost comparison for a hypothetical Python Development Team – in Israel, the United States, and Ukraine.

Budget issues for personnel extend beyond the fully-loaded cost of employees during the startup stage. Foregoing a large centralized office can save a lot of money. More money can be saved avoiding the need for computer hardware, many software licenses, and office furniture. The larger your team, the more overhead you take on in terms of human resources, payroll. There’s much to be said for the lean startup approach – to keep things simple and only add complexity when it’s needed.

How much does it cost to build a remote team in Ukraine?

If you decided to hire a development team in Ukraine or even open an R&D center, this calculator helps you figure out how much it would cost.

Calculate now

More Israeli startups are outsourcing

Though somewhat more modest in scope, 8% more Israeli startups are relying on outsourcing than they were six months ago, going from 29% to 37%. That’s still a significant increase for such a time frame, but it seems to go along with the speculation above. The largest factor for small organizations focused on expanding skill sets.

Ukraine is Israel’s most popular destination for outsourcing IT specialists and software developers. Israel’s population simply cannot keep up with the demand for tech skills that comes with being the Startup Nation. Though Ukraine also has many tech startups, the tech industry is focused more on services. Israel’s startups are focused on scaling up tech products and services to compete globally. Ukraine’s economy makes it difficult to suitably monetize tech products locally for a variety of other reasons. Ukrainian software developers are among the country’s top wage earners owing to international demand.

In-house employees are filling the role of project managers

Israel is known for having tight-knit communities. Many business owners are reluctant to outsource, preferring to hire people they know – or failing that, at least hiring locally. There’s nothing wrong with that except that local demand also equates to higher wages.

The higher cost of in-house employees warrants a measure of strategic long-term thinking. All companies, including tech startups, need to have some core tech talent to fill key roles and positions – certainly for C-level roles like the CTO, but also software engineering managers.

Having team leaders as employees is also prudent for the long-term given that the software industry has high turnover rates. The potential to advance within a company is one way of retaining key talent. Your startup’s best path forward may be in having your team leaders manage teams of 3-4 outsourced developers.

All of this cycles back to investors. They want to know that you’re going to treat their money with the same careful thought as you would your own. So, considering how outsourcing can fit into your startup’s plans is likely to impress them, increase their chances for investing in your startup, and extend your funding runway.

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