Israel: clouds in start-up paradise

Israel clouds in start up paradise

Usually, the daily life of startupers is well regulated. They move enthusiastically from immaculate open spaces to Zoom meetings. They refine feverish pitches on innovations that will “change the world” and monitor their user curve closely. For several months, in Tel Aviv, this trendy fauna has, however, had unique activities: they warn their elected officials, make banners, demonstrate in the street. If Tel Aviv remains an El Dorado for tech entrepreneurs, the change in climate is obvious: there are clouds in start-up paradise. In question, Benyamin Netanyahu’s judicial reform, which passed a key stage this summer and against which a good part of the sector is up in arms.

It is not easy, seen from abroad, to measure the impact of this text on the subtle balance of local institutions. “To understand current events in Israel, there is only one question: what limits the power of the government? Strong democracies rely on a system of checks and balances. Yet Israel has neither Constitution, neither upper house of Parliament, nor federal system, nor [aucune autre institution de] control of government power, except for one: the Supreme Court. […] However, the government is trying to [la] neutralize. [S’il] succeeds, there will be no limits to his power,” warned historian Yuval Noah Harari, author of the best-seller Sapiens, in a column published on the L’Express website at the end of July.

An opinion shared by many Israeli tech professionals, worried about the impact of this shift on society, but also on the digital economy. “This uncertain climate risks scaring off foreign investors,” whispers one of them. Last February, entrepreneur Yanki Margalit told New York Times : “Given the current climate, it’s almost irresponsible to choose to set up your business here. It’s heartbreaking to see that.” Tensions that come at a bad time, while the sector is only just beginning to recover from a major global cold spell. The post-Covid rise in interest rates has somewhat dampened the euphoria that reigned in digital during the pandemic. Everywhere, the giants have had to cut their numbers. And start-ups, learning to belt.

The new challenges of the start-up nation

But while the sky is clearing in the United States, the Israeli ecosystem is still waiting for improvement. In the first quarter, “the index of the 100 largest tech companies listed on the Nasdaq climbed 24% while the Tel Aviv Technology index fell 1%,” notes the Israel Innovation Authority (IIA), in a report published at the end of June. Over the same period, investments in start-ups fell by more than 70% compared to the previous year, continues the IIA: “A decline more brutal than that recorded in other markets to which Israel has the accustomed to comparing themselves.”

This breakdown is all the more unfortunate since tech constitutes one of Israel’s economic engines. The country, which has a population seven times smaller than France, located on an area smaller than Brittany, is today home to “the highest concentration of start-ups and unicorns per capita in the world”, points out Yariv Becher, vice president for innovation diplomacy at the nonprofit Start-up Nation Central. In detail: more than 7,300 start-ups and tech companies, 435 venture capital funds, 135 accelerators, 37 incubators and nearly 400 R&D centers of multinationals, such as Intel, Meta, Microsoft, and Samsung.

A tour de force made possible by an incredible ability to transform one’s weaknesses into strengths. The internal market is riquiqui? Never mind, Israeli digital companies immediately project themselves internationally, with the target markets business to business European and, even more so, American. “All our documents are in English and our structures, prepared for the stages of ‘due diligence’ [de vérifications nécessaires]in force in the United States”, confides a local entrepreneur. Is the neighborhood hostile? The State has invested massively in technologies applied to the military sphere. “Israel has developed real expertise in improving weapons systems electronics”, points out Jean-Christophe Noël, associate researcher at the Center for Security Studies of the French Institute of International Relations (Ifri). Target of numerous computer attacks, the country has also specialized in cybersecurity. Result: it is today a global reference in the field. The fact that some of its companies sell sophisticated spyware to other countries, such as Pegasus – of which The world and other media revealed the use against human rights defenders and politicians – has certainly darkened the picture. But “their advance is such that everyone continues to get supplies from them,” confides an expert on these issues.

The organization of military service has fallen into step. Men and women over the age of 18 must respectively devote thirty-two and twenty-four months of their lives to it. A very long gap which could have disrupted their learning. Except that Israel has made it a extremely effective orientation and training tool. Psychometric tests make it possible to identify each person’s abilities and direct them towards the units most suited to them. For example, the prestigious unit 8200 brings together computer prodigies, from which comes the electronic intelligence elite.

“Turn air into water”

“The strength of the population is its ability to manage the unexpected. Here, uncertainty is the only thing we can be certain of. Take the Iron Dome, this powerful air defense system. When, one summer , the State was targeted by incendiary balloons, we had to adapt to a completely new risk”, says Inbal Arieli, entrepreneur, investor and former member of unit 8200, met in her offices in Tel Aviv, in last June.

“During their military service, young people are given responsibilities very early,” adds Yariv Becher, of Start-up Nation Central. After being thrown into the deep end, the idea of ​​starting their own company doesn’t scare them in the least. Their time under the flag often even allows them to create an initial network.

Less well known than cyber expertise, national excellence in technologies applied to food is also striking. Since the creation of the State, the population has been confronted with an existential challenge: arid lands and a geopolitical situation which makes external supplies uncertain. He had to be inventive. In the 1950s, engineer Simcha Blass invented a drip irrigation system that revolutionized agricultural practices and was exported around the world. Israel has also developed cutting-edge skills in the management of wastewater, more than 90% recycled, compared to less than 1% in France.

In 2023, at a time of global warming, this know-how will prove valuable. East of Tel Aviv, the Watergen company is arousing the curiosity of countries facing increasing droughts with its boxes capable of “transforming air into water”. A magic trick performed by recovering ambient humidity to produce the precious liquid. To the south, in Rehovot, the Aleph Farms teams are working on the meat of the future: their laboratory-grown steaks do not have the disadvantage of coming from ruminants that fart and burp methane – a powerful gas with greenhouse – while they watch the trains go by.

The boom in artificial intelligence also opens up interesting prospects for Israel, according to Alon Kuperman, partner at GP Bullhound: “the country is at the forefront in several related areas: cloudsTHE machine learning or data analysis.

Is this technological advance threatened by the social tensions currently experiencing the country? If judicial reform is not an engineering problem, but a political problem, the tech sector has arguments to weigh in this debate. After all, it is the locomotive of growth: it employs 14% of workers, but represents more than 18% of GDP and around half of exports. “It is also a powerful instrument of soft power“, underlines Julien Nocetti, associate researcher at Ifri’s geopolitical technology program. For the moment, investors are “waiting and watching the outcome of this reform, which has not yet affected activity economy”, notes Seltem Iyigün, senior economist for the Middle East and Turkey at Coface.

If business leaders start to shun Israel in favor of the United States when they start their project, the effects will however be palpable. This scenario is not fanciful. In April, the Israeli Innovation Authority already observed that the ratio of new start-ups registered abroad rather than locally was between 50 and 80% in the first quarter, compared to 20% the previous year. . At the end of July, Start-up Nation Central also surveyed more than 700 entrepreneurs and investors to take the temperature. Balance sheet? 68% of them had taken legal and financial measures in response to the situation, such as withdrawing funds or transferring team members. Among those surveyed, 8% indicated that they had started the process of moving their headquarters, and 29% “intend to [le faire] in the near future”. Even if Israeli tech remains solid, these clouds should be taken seriously at a time when more and more countries – India, South Korea, France and even the United Kingdom – would also see themselves in new tech Edens.