Israel At 72: Israeli VCs Are Cautiously Optimistic About The Future, Despite Pandemic

Israel is marking its 72nd Independence Day at a time of global uncertainty and economic difficulty. The COVID-19 pandemic has infected more than three million across the globe, killing more than 200,000 people.

It has also ushered in a new reality — one where work, play, and everyday activities like grocery shopping are done remotely from the confines of the home. Those who don’t fall into the essential worker or medical professional category have also conformed their schooling, parenting, and leisure activities to inside or near the home, to adapt to lockdown regulations and social distancing practices.

While the numbers are significantly lower in Israel, where 15,000 people have been confirmed to have COVID-19, a little over 200 have died, and more than 6,000 have recovered, the situation remains grim for the more than one million people facing unemployment. This is further impacted by the fact that prior to the coronavirus outbreak, unemployment in Israel was at a record low of approximately four percent.

The state of the world seems bleak, but there’s a light at the end of the tunnel. Countries like Italy and Spain are reporting their lowest daily death rates in a month. Israel has seen its lowest daily amount of confirmed cases this week. Restrictions are gradually being eased, for better or worse, and Israel’s high-tech employees are beginning to trickle back into the offices.

SEE ALSO: Israel At 72: Coronavirus-Fighting Ingenuity Reinforces Israel As the ‘Collaboration Nation.’

Among Israeli investors, meanwhile, the outlook has been positive from day one of the crisis. Israeli investors have marked this difficult time as one of immense change but with heightened acceleration, growth, opportunity, and cooperation.

NoCamels spoke to venture capitalists from firms such as Jerusalem Venture Partners, OurCrowd, Aleph, YL Ventures, Ibex Ventures and Grove Ventures about the future of high tech investment in this new normal.

Here’s what they had to say.

The acceleration of digitization

The crisis has accelerated digital tech trends “at warp speed,” Jon Medved, CEO and co-founder of OurCrowd, the large Israeli equity crowdfunding platform, tells NoCamels.

These trends have always been present, he says, but have pushed services without a digital presence to pursue one and have also propelled the expansion of long-term changes that people will have to adopt.

Other investors, like Michael Eisenberg, an equal partner at the Israeli-based venture capital fund Aleph, were in agreement.

“We are in something of a time warp where history is being accelerated and technology and automation is ever more pervasive and needed in every part of industry and life from health to finance to government and retail,” Eisenberg tells NoCamels.

Fiona Darmon, a general partner at Jerusalem Venture Partners says that people need to latch on to this “leapfrog of forced adoption of technologies” which were already there but not harnessed for various reasons.

“Are we going to be seeing new companies emerge? Probably yes — as a result of the pandemic, needs have arisen. But are we [also] going to see a quicker adoption of cloud and online technology by companies and regulators? Yes, absolutely,” she tells NoCamels, “Look at the banking system in Israel. You still have to go to your local branch to sign certain documents. Now everything will be moved online.”

“It’s not merely going back to normal, or a little more normal,” adds Medved. “It’s a new normal. I don’t think people have fully absorbed how many of these changes that we’re facing are really going to be our lives forward,” he insists.

“The changes were are going through here temporarily are not temporary. They’re permanent.”

The time to invest

While the COVID-19 crisis has been a distressing and difficult time, Israeli VCs have also looked at it as a period ripe with opportunity for both investors and entrepreneurs.

Dov Moran, a leading Israeli entrepreneur, inventor of the USB memory stick and managing partner at Grove Ventures is cautiously optimistic, but also realistic.

“Everybody is going to see less money for any portfolio. We’re all connected. We’re going to see difficulties to sell new products, to bring new technologies, to get companies to be acquired.”

But, he adds, “[Grove Ventues] is early stage and still in R&D so our companies raised money in the last year and are still doing really well.”

A joint IVC and ZAG S&W report this month showed that the impact of the pandemic was felt towards the closing of the quarter in the months of February and March, but that Israeli companies and startups still managed to raise a record $2.74 billion in 139 deals prior to the crisis.

Eisenberg continues to believe that innovation and success will endure.

“Great entrepreneurs emerge during times of constraint. Innovation is constant. Hence, our investment in startups is consistent and constant,” says Eisenberg,

“First and foremost, this is a time for empathy. We must reach out to people we know and to those we do not know and listen and be attentive to their needs,” he wrote in an Open Letter to Entrepreneurs published in Medium, “It is also a time to dream, to innovate and to plan for a better tomorrow. A people with no hope not only has no future, but also has no present.”

Aleph has begun an Anti-Viral A-List campaign to help match people looking for work with companies that are hiring. There is growth at a number of companies even during this difficult period, Eisenberg says, noting that Aleph is thinking about the trends that will be obvious in three to five years.

“I think this will be remembered as a very remarkable year for investments,” says Medved. But, like Moran, he is also realistic. “I think it’s a difficult year to be a VC because you have to deal with all your existing portfolio. But in terms of new investments – never been better.”

“The reason it’s a really good time to invest is simply that we’re in the middle now of an inflection point which is going to change the world forever,” he tells NoCamels.

Nicole Priel is vice president for Ibex Investors, a US-based firm with an office in Tel Aviv, which has invested in startups like AI driving app Nexar and digital customer experiences solution firm Glassbox, She says that its Ibex’s tendency to think long-term that has been a key to its success during this period.

“We take a long term view and are looking beyond the headwinds of the next six, 12, or even 18 months in order to invest today in companies that are tackling massive problems and are going to change the future. Our investment thesis hasn’t changed and we continue to believe that Israel provides unparalleled opportunities across the board,” she tells NoCamels

“Secondly, some of the most successful companies have been born out of recession. Corona or no corona — we are actively looking to partner with the best Israeli companies,” she explains.

The survival of pivoting startups

While a startup pivot usually occurs after feedback from a consumer, expert, or investor, the coronavirus crisis has seen a new kind of pivoting — one that based on the desire to help stem the spread of the pathogen and adapt to the changing environment.

Some Israeli startups adapted quickly to the situation, having already created a product or service that is relevant.

For example, JVP’s portfolio company ControlUp is a real-time operations analytics and management solution for virtualized IT infrastructure, which Darmon says is great for those IT managers “that have to connect and keep whole organizations running from the home office.”

Another example is the OurCrowd portfolio company Tyto Care, the company that recently received an additional $50 million in funding for the production of its remote medical testing devices due to surging demand and rapid telehealth adoption.

According to Darmon, JVP portfolio company Nanit, a smart monitor that combines computer vision with data-backed sleep science to predict the growth pattern of an infant through camera technology, has recently been bought by numerous members of the elderly population to watch a grandchild as he or she sleeps while the relative remains isolated at home.

“Everything is about hands-free and what can you do about coming into contact. Nanit is a portfolio company of ours that totally meets the need of grandparents and maintaining that contact,” she says.

Eisenberg says that a number of Aleph portfolio companies have also pivoted and are “voluntarily using their technology in order to help fight against corona. “

Smartphone clinical urinalysis Healthy.io has been working from the office this entire time to enable remote health care, Eisenberg says. Meanwhile, Israeli delivery logistics company Bringg launched BringgNow for free to help small businesses adapt to COVID-19.

A number of startups have also begun to use their technology for contact tracing and to monitor infected people during the pandemic.

Ibex Investors is currently invested in a company called Continual, a mobility and traffic analytics company that has “a lot of traction with telecom companies.” Part of what they’re doing, Priel says, is helping to detect mass gatherings of people in an effort to contain coronavirus outbreaks.  

The company signed three deals in the US and EMEA in the last month, according to Omer Geva, chairman and president of Continual.

VisibleZone, an OurCrowd-backed firm, is doing something similar. The Israeli-founded firm, which uses smartphones to develop a pedestrian detector decided to apply its technology to contact tracing.

“They said, ‘Wait a minute, we have a way of communicating and doing accurate measurement and prediction about where people are walking and where they are in the physical space. Let’s use it for contact tracing, to make sure employees are keeping their distance and to identify someone who may have been near a sick person,” Medved says.

Cybersecurity and changes in customer behavior

Priel tells NoCamels that Ibex Investors just made a seed-stage investment in an Israeli cloud security company currently in stealth mode about a month ago, just as the coronavirus was beginning to spread outside China. She tells NoCamels that one industry that has not been negatively affected by the pandemic is cybersecurity.

“We believe that cyber is going to be one of the least impacted sectors from Covid19. It’s not a nice-to-have, it’s a need-to-have, and as corporate budgets contract, cyber will be disproportionately less affected. As remote work accelerates and IT environments become increasingly more complex, the need for cybersecurity is only strengthening,” she explains.

Sharon Seemann, vice president of marketing for YL Ventures, an Israeli investment firm dealing specifically with seed-stage cybersecurity startups, agrees that the sector is flourishing mainly because working from remote locations during the current crisis brings an increase cybercrime.

Indeed, NoCamels reported last month that the large-scale transition to work-from-home has opened the door to massive cyber threats for enterprises whose employees are now working from personal computers.

While Seemann says the cybersecurity startups in YL’s portfolio are unlikely to pivot, she does acknowledge one significant change — the way they deal with their customers.

“Customer engagement is facing a significant change as companies are struggling to cope with the situation and decrease product acquisition,” she explains. “For a while, we saw an influx of scare tactics and fear-mongering in the industry to drive panic around an already awful crisis, but I believe it was quickly learned that this type of behavior did very little for anyone.”

Seemann says now startups are focused on understanding the needs of their customer, readjusting their payment structures according to their customers’ situations, building goodwill, and ramping up their R&D to improve their products.

Darmon has also noticed a significant change in customer behavior among customers of JVP-backed startups.

“What’s happening now is not like something we’ve seen before,” she says. “The reason I say that is, first of all, everyone is at home. So it’s totally changing customer behavior. It’s changing user behavior. The move to work from home means you’re seeing a lot more use of the cloud. You’re seeing a lot less travel, of course. You’re seeing a lot more e-commerce, you’re seeing a lot fewer stores. You’re seeing a whole change of the world of banking. Everything is changing and the big question is going to be: ‘Is this a short-term adaptation to a current pandemic? Or is this really going to affect demand in the long term?'”

Looking at Israel’s recovery in the longterm

Grove Ventures’ Dov Moran says we are all affected in the long run, but that Israel will be one of the first countries to come out better and stronger because of our willingness to adapt.

“I think we will be among the first to adapt, to understand what needs to be done, to understand why what is happening is so important, and where we need to focus our efforts, innovations, and technological developments,” he says.

“I do believe Israel will get out of this disaster even stronger,” he adds.

Medved believes that OurCrowd, and Israel in general, will always have a long list of companies that are willing to help and improvise in times of crisis.

“We keep on thinking that we’ve sort of exhausted it and no, another company comes and then another company.” This plays to Israel’s strength as a nation, he says.

“What really characterizes our startups is the ability to improvise, to pivot. Israelis are very flexible in that area. When they see an opportunity, they can take it. They’re good at getting by with less. They’re capital efficient. And they work fast. Today this is all about speed. There is no more time. Time is not our friend. People’s lives are at stake.”

This goes to show that the current problems of the world, whether they are related to COVID-19 or not, are going to be solved using technology.

The fact that platforms and investors can mobilize and push those companies forward, “that’s a great thing,” he says.

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