Funding for Israeli startups ‘freezes completely’ as political turmoil scares tech leaders

In the last seven years fintech Papaya Global It has become one of Israel’s most successful startups, raising hundreds of millions of dollars to build a human resources and payroll platform.

But at the end of January, the CEO of Papaya Eyes gouge He withdrew his company’s funds from Israel, citing the country’s precarious business climate amid political turmoil. She joins a group of tech leaders who are worried about being prime minister. Benjamin NetanyahuA plan to give Parliament the power to overrule the Supreme Court.

Such reforms have not only aroused widespread opposition The amount that Israel has not seen for decadesBut it raises questions about the future of the country’s tech industry. The Israeli government is moving to appoint the Knesset, parliament, judges, overturn Supreme Court decisions, and remove the Supreme Court’s jurisdiction over state laws.

“There’s a lot at stake here if this reform goes through,” he said. Shali Galileefounding partner at Up westA Silicon Valley-based seed investor invests in Israeli founders. This will affect “investments coming into the country, founders staying in the country or not.”

After the first vote on such reforms was passed in January, the response was swift from both tech investors and startups. Dozens of public and private technology companies Officially announced They are taking money from the country. Guez, however, estimates that many have done it quietly, leaving the country with an estimated $7 billion to $10 billion.

“It’s a new thing for the tech community to be apolitical and jump out of their comfort zone to show their power,” Galili said.

After the first vote was passed in January, Galili said, this issue dominated the calls she made with startup founders.

These judicial reforms have not been discussed ahead of Netanyahu’s November 2022 election. “You could argue that most people either voted for these reforms or they didn’t vote for them,” Guez said. “It was not even discussed. It’s been a surprise to us, and the majority seems to be saying that’s not where we’re going.

‘high risk’

Based in America Bessemer Venture PartnersAn active investor in Israel for three decades, he estimates he has had an office in the area since 2007. He has invested more than one billion dollars including at the beginning of Israel Axenius, Fiverr, Habana And Hybob In the last 10 years. But in February, the firm recommended that startups’ portfolios be limited to personal notes. Six month shekel.

“Given Israel’s limited exposure to the local economy, we are confident in Israel’s high-tech resilience, but we have significant concerns that the current climate could have a chilling effect on non-tech foreign investment and domestic consumption in Israel, given the challenging macro environment,” The organization He wrote in the note Found in the Israeli newspaper Calculus last month. With outflows from Israeli banks picking up steam, our main concerns are the continued weakening of the shekel and less risk of foreign exchange controls. While both risks may seem exaggerated at the moment, investor and public perception can suddenly make both risks real.

Moving funds

last week, WizThe unicorn of Israel He announced that 300 million dollars will be supported At a cost of 10 billion dollars, but in political conflicts, the new funding will not be transferred to Israel.

Guess also acted quickly after the initial vote, moving Papaya Global’s money from Israel to Europe and the US.As a CEO, it’s important to always assess business risks. But Guez went further and was open in her criticism, considering it a responsibility to speak up.

The Israeli government is starting to “demolish everything we have built in this area,” she said. Currently, it is almost impossible to take a round in Israel, because the level of danger is very high. The funding environment is “completely frozen,” she said.

She says that the Supreme Court is one of the most important institutions in a country with internal conflict. “Get rid of the Supreme Court – this is the end of democracy.”

A new industry

According to Crunchbase data, Israel-headquartered startups in 2018 Raising nearly $8.9 billion in 2022 — down from $9.8 billion in 2021, a 10 percent year-over-year decline. That goes against the generalization. 35% reduction in global funding Year by year in 2022.

Billions of dollars invested in Israeli startups are a testament to its leadership in cybersecurity, health, energy, agriculture and food technology.

In the first two months of 2023, Israel-based startups raised more than $500 million, a 72 percent decrease from the amount raised from January to February 2022.

However, if you consider that many Israeli companies have dual headquarters or are headquartered outside of Israel, the amount invested in Israeli startups is much higher.

The growth of large Israeli tech companies is a recent phenomenon. Five to six years ago, when Guez started raising money for Papaya, the big idea was that you can’t build big companies in Israel, and founders sell with good ideas.

More than $50 billion has been invested in Israeli tech companies over the past five years, according to Crunchbase data. And more than 30 or 40 companies have gone public, Guez said.

The importance of the technology industry to the Israeli economy Report in 2022 from Israel Innovation Authority. High-tech exports will account for more than 50% of exports for the first time in 2021 – most of which are in high-tech services. More than 10% of Israelis work for technology companies.

International perspective

Israel’s tech community is international in its outlook.

“Israel has no domestic market. Israeli founders have to be global from day one,” says Galili, who works with Israeli startups on their go-to-market strategy in the US. Parts of the world.

Israeli startups are also dependent on international investors, many of whom have developed local investment vehicles due to the strength of the technology industry in Israel. Galili predicts that 85% of the dollars invested in Israeli startups come from outside Israel.

What is the impact?

Founders are looking at what their options are. Startups in the tech industry have options to relocate almost anywhere in the world. “Everybody’s talking about it,” Guez said.

For now, Galili says the talent in Israel is to draw on startups in the country despite the violence. “Most of the impact is the uncertainty we have right now,” Galili said.

In the future, Israeli startups that previously incorporated their companies in Israel may decide to do so in Delaware or elsewhere in order to protect their intellectual capital in a country where the judicial system is not compromised.

The current political tensions can be seen as between the political right and the political left, but “it’s really about the right to live in a democracy.”

Protests against Netanyahu’s plan They also spread to the Israeli army.. “As time goes on, more and more people from the right say, ‘This doesn’t reflect our views.’ “This is not what we chose,” Guez said.

“The general environment is that we understand that we need to unite and fight for the things that are important in this country,” she said.

Example: Lee-Ann Dias