The silent decline of the Israeli high-tech
For five months we’ve been warning that the threat to the democratic regime could seriously harm the Israeli startup nation ■ Now we can say with full confidence that everything we feared is happening on the ground: this is what the high-tech emergency braking looks like ■ High-tech entrepreneur Zohar Levkovitz in a special column
(Excerpt from the article translated from Hebrew by Ofer Neiman)
There are hardly any investors, there are hardly any new companies, there are hardly any exits. We said that the judicial coup would eliminate the Startup Nation, and now we can say with full confidence that everything we feared is happening on the ground: investments in high-tech companies in the first quarter of 2023 fell by 75% compared to the first quarter of 2022. There’s still some trickling of new companies in their early stages, but those that are still being founded prefer to register as American companies.
Foreign investors read the New York Times — and turn to alternatives
90 percent of hi-tech investments come from foreign investors. Those investors have many and varied investment options. We are not alone in the world: Ukraine, India, China, the United States, Germany, England and many other countries. They all have high-tech centers. They all have excellent academia, and you can invest in all of them. The foreign investors see the changes that are taking place in Israel, reads Thomas Friedman in the New York Times declaring “The Israel we knew is gone” and “Israel is no longer a democracy “. The foreign investors stop in their tracks. They are waiting to see how things unravel, turning to investment in other countries in the meantime. They have alternatives. Investors are afraid that (the Israeli government) will change the taxation on their investments, that it will nationalize companies, that it will harm their ability to sell, that it will harm their property. Investors like security, which Israel does not offer nowadays.
Silicon Valley is starting to come out of the crisis, and Israel is stuck deep in it. The graph charting the beginning of their recovery is moving away from our graph that continues to decline. It’s really scary. For the first time in many years, we are not linked to Silicon Valley, and for the first time the charts are moving away from one another.
Damage that will take years to restore
Negotiations continue at the President’s House about that coup, and everyone is standing still. We want to hear from the government the words “We have shelved the legislation”, so that investors know there is certainty and come back here. We want simple mechanisms to be included in the Knesset’s regulations that will not allow an overnight coup. We want all of this to start being restored, and we will restore. We are committed to this, we are 100 percent Zionist. We built an industry here once, and we will build it again. The damage has already been done, and it will be difficult, but we will fight to restore [the Israeli hi-tech]. If anyone thinks that tomorrow the investors will return by themselves — they are wrong. It will take years to restore, it will take years to restore the investors’ confidence.
Investors have invested in Israel also, and perhaps mainly, due to a sentiment that built up over decades. We called this sentiment for two decades — ‘Startup Nation’. ‘Scale-Up Nation’ was what we called it for the past five years. It’s just that today it’s already ‘Stop-Up Nation’. This sentiment is one of accelerated decline today. A real crash. A sentiment that will take years to recover.
In my first company, 20+ years ago, the investor from Silicon Valley said: “You can build the company wherever you want, but I come to the board meetings on a bicycle.” It took us 20 years to convince Silicon Valley investors to come to our board meetings on a plane to Tel Aviv, they must not go back to bicycles. This must not happen. It will cost us dearly, all of us.
An economist once said that managing an economy by results is like driving a car by the rear-view mirror. You see the crisis only after it has passed and the accidents ahead only in retrospect. He was right. I strongly advise all of us not to look in the mirror for another seven years, maybe nine, once we understand the results — entrepreneurs who did not launch projects, startups that did not start up and investments that disappeared.
I recommend taking this issue into consideration today, as this is what high-tech emergency braking looks like. Without investments, entrepreneurs and new companies, it will be hard here. It will be very bad here. I’m hoping for the best.
