“World sentiment is not in our favor,” Team8 Capital managing partner Sarit Firon told the Globes Tech IL Conference today, speaking on a panel of prominent investors in Israel. In addition to Firon, the panel included Vintage Investment Partners partner Hamutal Meridor and was led by Globes tech correspondent Meytal Vaizberg.
The panel presented figures about falling investments in Israeli tech because of the war.
“World sentiment is not in our favor
Firon said, “We have raised three funds. The fund I am responsible for was raised before the war and the others were raised during it. It was difficult, world sentiment is not in our favor. When the fund began in 2019, the sentiment was very different, and the market was very much for us.”
Meridor stressed that this has been the global trend since 2021 and so it has been the trend for many good funds in the world. She said, “Yes, it’s more difficult here. I just told Sarit that the scariest thing is what we don’t hear from our investors. They won’t say we won’t invest in Israel because the government is doing things we don’t understand or because there’s a war – but over the next year or two I’m afraid there’s a chance we’ll see investors leaving here. I’m optimistic, I’ll say that we see interest from Jewish families around the world who are diverting money to Israel.”
Will we see the resumption of IPOs?
Firon: “The trend is not directly related only to the situation in Israel. During bubble periods we see many acquisitions and flotations. In recent years the US stock market has been closed to IPOs – Covid, printing money for bubble valuations and then its bursting. On the other hand, there are many unicorns that are definitely in line for an IPO. It seems that this year the stock exchanges in the US will be open for IPOs, and we will also see Israeli companies floating.
“It may be that there are Israeli companies that prefer to be sold, because they prefer certainty, and it is difficult for them to wait for the public market to open. Secondly, many potential buyers have recognized some sort of weakness in Israel, and thought that maybe it was time to buy companies cheaply, but met Israeli determination here, with most companies not prepared to be sold cheap. We’ve seen great deals recently, Talon and others.
“Ultimately the question of whether to sell or go public is based on many things, and sometimes when there is a good offer the right thing is to sell – that’s not a sign of weakness. For somebody who was with a publicly traded company, it’s not fun.”
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What about areas other than cybersecurity?
Meridor: “Two fields in which I am involved are AI and data. Israelis are lagging a little behind in them with most of the researchers at US universities or at Google or Meta and not in Israel. Those who are in this field will be companies that solve problems. One Zero (digital bank) is a great example. They are developing AI technology, and there is a lot of engineering. I think that if there is something that Israelis are good at, it is to be the first to identify and solve problems and run to a solution. Did we miss the train? Maybe, but I think we’ll see developments.
“A second field that is very interesting is defense tech, in which Palantir, the company where I worked is involved. It is a field in which historically, unfortunately, we have not been strong enough, which is very strange. Cybersecurity has somewhat consumed all the military personnel, but I think that after October 7 and the reservists who saw the battlefield – and I have already met many teams that have returned and know what is broken – we understand that we are under threat, and there will be a wave of amazing companies that will arise, and some of them will be the next Israeli Palantirs. Defense-tech is a super interesting field.”
In a period of crisis, companies must adapt themselves. Do you see this with your portfolio companies?
Firon: “There have been very many economic crises in my life. In the 2000 crisis I was in Silicon Valley at a company that wanted an IPO at a valuation of $1.5 billion, and then the bubble burst. In 2008, we planned an IPO with Lehman Brothers and later on there was Covid. Companies go back to being modest and streamline.
“During times of a bubble, the thing that was important to me in the companies I worked for was to conduct myself in a very responsible manner – in spending to be very frugal, and in investments to be very aggressive. I also brought this to the companies I invested in, and luckily I invested in entrepreneurs who really understood this. In times of a bubble it is more difficult to maintain discipline, but it is possible.
“In war Israeli tech and the nation have shown themselves in all their glory”
“Regarding the war, in local companies about 20% of employees were drafted into the reserves, including CEOs. It hurt development efforts and all sorts of more strategic plans. Israeli high-tech and the nation were shown in all their glory. The resilience was evident. Employees who remained worked twice as hard as before. That’s why I think the damage in the short term was minimal. We made a tremendous and very effective effort to show customers and investors that everything is fine.
“I can say that only recently have we have seen a few unpleasant things coming from customers, which are not said in openly, let’s say a customer from South Africa who does not renew a contract. It is very marginal and only recently. But the determination of companies, entrepreneurs and employees is amazing.
“In the end, when you look at investors, they are very smart people, and if they think that the most interesting company will grow in Israel, they will invest here. Recently, several companies raised over $100 million in the most difficult period. Amazing talent will protect us. I hope that we will also see a diplomatic horizon, because we have to get out of the uncertainty for the economy.”
We have seen negative sentiment towards Israel. How much does that trickle down to business?
Meridor: “We invest in American funds, and some have reduced volume. There is an investor who told me that Israeli companies are the best in his portfolio, and this is true even after October 7th, and we see in the reports that the companies manage to exceed forecasts. Of course, there are voices that are not like that, but there are many voices in our favor, only a few because the atmosphere is difficult, there is a good propaganda machine against us.”
Firon: “‘Prof.’ Abby Joseph Cohen, who was a partner at Goldman Sachs, said that after October 7 they did a survey at Columbia University in the faculties of mathematics, business, etc., and it was found that 92% are pro-Israel. She said that everyone whose way of thinking is data based is pro-Israel. Investors are also on this side, and some of them prefer to wait, even if it does not come from being anti-Israel. I think that when the situation stabilizes, they will return in droves, because they have made a lot of money here.”
Full disclosure: The Conference was sponsored by One Zero Bank, Microsoft, HP Indigo, KPMG, AT&T, and Mekorot and with the participation of the Israel Innovation Authority.
Published by Globes, Israel business news – en.globes.co.il – on April 16, 2024.
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