The war in Gaza continues, with a resonating effect. Among the chanted slogans, riots, the multiple narratives, and, of course, the one devastating truth, there are less discussed issues that, in normal times, are clear-cut; these days, they produce more questions than answers.
After years of unmatched success, Israeli high tech, the country’s most productive sector, is facing the price of war, and everyone is wondering what its future holds.
Military operations are far from over, but the wheels of the Israeli tech industry keep moving. While investors may worry about their investments, and companies may fear for their global business, resilience seems to be one of the startup nation’s secret sauces.
Can The War in Gaza Undermine Israel’s Technological Dominance? Insights from a Leading Investor
A large event held last week in the heart of NYC, which showcased 40 promising Israeli startups in different stages of development, testified to the confidence that investors have in Israeli companies and their impact worldwide.
The event, attended by over 150 investors, was hosted by Jerusalem Venture Partners (JVP), a 30-year Israeli venture capital firm. An investment powerhouse with an intriguing perspective, JVP perhaps augurs the future of the Startup Nation.
Founder and Chairman of JVP and Margalit Startup City, Erel Margalit, strongly believes that the current challenges are ones that every Israeli entrepreneur can handle: “Surmounting hardship, overcoming obstacles, and achieving the impossible have been part and parcel in the journey to building some of Israel's leading high-tech companies, whether these challenges originated from the first or second intifada, or one of the previous wars in Gaza,” he says.
The Answer Is Always Yes
During the past few months, investors and business partners outside the conflict area have questioned whether Israeli companies are keeping up, meeting product development deadlines, and managing to travel to and from Israel to meet clients. “The answers to all these questions,” he says confidently, "is yes."
"This resilience embodies more than business success; it reflects a victory of creativity over ... [+]
“We have always worked in an extremely challenging environment, and the innovation and high-tech sectors have not only generated economic and business success but brought people together, even promoted co-existence. Innovation for us is a way of life and what makes Israel a strong international player.”
On October 8th, their Climate and Foodtech Center in Galilee, which includes 74 startups, had to relocate, posing a significant challenge. Despite this, says Margalit, there was a remarkable collective effort to maintain business continuity. Many companies also faced challenges as team members were called up to the reserves, requiring concerted steps to maintain cohesion and productivity. "Companies redoubled their efforts to meet revenue targets and goals. What's inspiring is the global collaboration among teams to ensure product delivery and maintain a consistent vision." This resilience, he adds, embodies more than business success; it reflects a victory of creativity over destruction, life over death.
Hands On DNA
During the Big Apple event, global investors gathered to learn about the many different companies, their areas of focus, and their work during the war, but also to learn more about Margalit’s navigation techniques that have had proven results.
JVP has raised over $1.75 billion across 10 funds and built a network of global strategic and business partners. It has had over 40 portfolio company exits, 12 initial public offerings on NASDAQ, and a long roster of industry sales.
A profound understanding of the industry is critical in ensuring a successful investment. JVP strategically invests in thematic sectors like cybersecurity, AI, Fintech, Insurtech, and others to gain in-depth industry insights and leverage its vast experience in identifying and excelling together with category leaders.
Margalit at the JVP 2024 annual meeting in NY. "Global investors gathered to learn about the many ... [+]
Margalit claims that he developed a philosophical understanding of whether a startup will be successful or not while working on his PhD at Columbia. "It's not in the stars," he says. "It depends on what you do with the founders and managers and how you build the company's leadership. A lot of it involves working together as a team. Managers, shareholders, and board of directors, to build a vision and execute it."
His PhD thesis, entitled Entrepreneurs in History, explores how political leaders can alter their country's trajectory by reshaping its narrative. “Churchill, for instance, reframed the narrative of the war with the Nazis from a conflict between England and Germany to a battle between good and evil that could determine the future of civilization. Entrepreneurs," Margalit explains, "can similarly redefine their company's purpose, stakes, and industry norms. This philosophical perspective influences my outlook on life and business."
For the past decades, JVP has played a crucial role in shaping Israel’s international market leaders, expanding their reach to North America, Europe, and Asia, and securing substantial ownership stakes for the firm. It adopts an early investment approach, acquiring a prominent position at a low cost, and further reinforces this position through subsequent investments alongside leading third-party international funds. While most VC's have an 8% stake in the company when it exits, JVP retains a 30-40% ownership stake in these companies, thereby assuming a lead investor role.
“It makes a substantial difference if a VC owns more than 40% of a company when it reaches a multibillion dollar value. This creates a very high multiple, which means that we play a pivotal role in helping the company define its product-market fit and then helping it to transition from a tech-focused entity to a leader in its market category.”
The VC’s headquarters in New York serves as a focal point for meetings and strategy discussions between Israel, Europe and the U.S.’s West Coast. "It's a place where Israel is being represented through its technology and innovation."
Margalit says that the wheels are moving fast today for many Israeli companies: "We're currently finalizing deals globally, including in the UAE, Bahrain, Europe, the US, and Asia.”
He adds that many associates express sympathy as well as support for the companies' efforts during this crisis. "Investors and business partners seek clarity on Israel's post-conflict plans and diplomatic strategies, recognizing our high-tech sector's role in international relations. Despite challenges, we remain committed to building bridges and asserting Israel's leadership across various fronts."
While naturally heartbroken and concerned about current developments in the region, Margalit focuses on the mission and has a positive message for all global market players: "Israeli entrepreneurs thrive amidst adversity, emerging stronger with each challenge. To hesitant investors, I offer assurance: Israel's history of resilience speaks volumes. Embrace the spirit of Israeli innovation, where obstacles fuel growth and success knows no bounds. Together, let's forge a future defined by determination, partnership, and an unwavering commitment to excellence."
