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Tel Aviv-based venture capital firm TLV Partners this week joined top executives and financial firms in warning that judicial reform proposed by the new right-wing government threatens democracy and is set to hurt the country’s thriving tech industry.
“If Israeli democracy is damaged, the hi-tech industry will wither or flee abroad. Good minds leave, Israeli entrepreneurs set up companies outside the country’s borders, the country’s credit rating suffers (S&P). [Standard & Poor’s] It has already announced that the legal reform could lower Israel’s credit rating) and others,” VC’s four partners – Rona Segev, Shahar Zafrir, Adi Yarel Toledano and Ethan Beck – warned in a letter to the public.
“An entire industry carrying the country on its shoulders will be forced to find another place to flourish,” they warned. “The damage is enormous and it affects everyone – left, right, religious, secular, Arabs and Jews.”
TLV Partners was founded in 2016 by entrepreneurs and venture capitalists Segev and Beck, previously with Israeli VC firm Pitango. Formerly with Magma Venture Partners, as Managing Partners, and Yarel-Toledano, also formerly with Magma, join Tzafrir as Partner and Chief Financial Officer. To date, VC has raised nearly $1 billion in funding for at least 45 Israeli companies focused on fintech, deep tech, healthcare, cyber security, e-commerce, and asset technology. The startups TLV Partners has invested in have raised more than $4 billion and employ more than 4,000 people.
His portfolio companies include Israeli AI medical imaging company Idoc, insurtech company Next Insurance, data tech startup Datagen, and Quantum Machines, the developer of a standardized universal language for quantum computers and a specialized platform that helps them run.
“The largest amount of capital invested in our industry is solar and water,” VC officials said. “But a flower cannot grow on rotten soil.”
After holding a record $27 billion in 2021, mainly from foreign investments, funds raised by Israeli startups have halved, down to $15.5 billion. This was $18.64 billion, or 73 percent, of total capital, the same share as in 2019 and 2020.
Barak Elam, CEO of Israel’s Nice Ltd., a cloud-based software provider, warned earlier this week that the legal backlash would have dire consequences for doing business in Israel and attracting investment.
Concerns raised by top business executives when Justice Minister Yariv Levin proposed judicial reforms last week would severely limit the Supreme Court’s ability to strike down laws and allow the Knesset to re-enact laws that the court struck down. It would also allow Benjamin Netanyahu’s government to control the appointment of judges and allow ministers to appoint their own legal advisers.
Supporters say the change is needed to undermine public interest in the justice system, while critics argue it removes critical checks on legislative and executive power.
“Israel’s hi-tech ecosystem is built on freedom of expression and support for innovative and creative thinking. It thrives in places where people have rights and freedoms – after all, what is the hi-tech industry if not a mosaic of all the people who work in it, “TLV Partners wrote in the letter. “These values are being trampled by the current government. The actions that are being taken now are paralyzing the justice system. To do so and recklessly upset the balance between the authorities, seriously undermines democracy.
Other critics argue that the reform will remove all checks on government power and threaten the rights of ethnic minorities and vulnerable members of society.
“An imbalanced system is a dangerous system for everyone, both individually and collectively. It is dangerous for the majority and the minority. It is dangerous for the right and the left. And it is our duty to prevent it from happening,” said the letter from TLV Partners. “It is with a heavy heart and great pain that we say these things, and we hope that the destructive actions will stop before it is too late.”
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