Many start-ups have withdrawn their funds from Israel, but now the failure of the Silicon Valley Bank is hitting them.
(Photo: Bloomberg)
Tel Aviv Maayan Cohen did everything right. When the first news about the problems at the Silicon Valley Bank (SVB) broke around the world on Thursday, she knew that she had no time to lose. There was nothing to interpret about the warning signals. The boss of Hello Heart, a start-up for blood pressure monitoring apps, woke her finance department in the US. They should immediately close all accounts with the SVB, she instructed them. This is how Hello Heart managed to save the funds deposited with the SVB at the last moment.
Maayan Cohen is no exception. Matan Hodorov, a business journalist with the Israeli television channel Channel 13, says other start-ups just managed to get their accounts to safety. Those who were alerted in time shifted capital to other US banks. According to Leumitech, a subsidiary of Bank Leumi specializing in high-tech financing, its customers were able to withdraw around one billion dollars.
The risk was great: many Israeli start-ups still had 90 or even 100 percent of their funds with the SVB on Thursday.
Israel’s government promised help for those start-ups that reacted too late. Prime Minister Benjamin Netanyahu promised over the weekend that he was determined to support Israeli high-tech companies and their employees.
Although the SVB crisis could ultimately be mild because of the US government’s deposit guarantee, it would have a negative impact on Israel’s high-tech scene, Hodorov fears in an interview with Handelsblatt: “Overall, the risk profile of the tech industry has increased.” That’s a bad one Message for the start-up nation and the tech industry. It generates more than half of Israeli exports.
Netanyahu’s policies initially drove many start-ups abroad
Just in the past few weeks, numerous entrepreneurs had transferred their money to SVB accounts in order to protect them from the Netanyahu government’s reform plans. She wants to curtail the powers of the Supreme Court and give Parliament more rights. The flight of capital has been sharply criticized by the government, says Hodorov. But the bankruptcy of the SVB will not cause companies to rethink. He says: “Even now, many are not thinking about getting their funds back.”
The Israeli prime minister promised help to the affected start-ups if needed.
(Photo: dpa)
The Israeli branch of Silicon Valley Bank has since closed and its 40 or so employees have lost their jobs. One of the biggest risks for the tech industry is access to credit limits, the business newspaper Calcalist quotes a venture capitalist as saying. The SVB was known for lending to loss-making start-ups, while elsewhere it was difficult for them to get money. Now there is a risk of a credit crunch because Israeli banks are likely to act cautiously.
Entrepreneurs fear a slump in high-tech investment as venture capital funds also had accounts with the SVB, which are now believed to be frozen. Israeli startups would face lower valuations, increased competition for funding and logistical challenges in the coming weeks, economists in Tel Aviv say.
Netanyahu is using the US bank failure as a welcome opportunity to point out the quality of the Israeli economy. The economy is “strong and stable,” he said. The lesson to be drawn from the SVB debacle, says a proponent of judicial reform, is that entrepreneurs are better off in Israel than abroad, despite the political crisis and geopolitical risks.
However, many entrepreneurs disagree. Foreign investors, who are the tech industry’s top financiers, are increasingly concerned about Israel’s political trajectory. Above all, they fear the consequences of the planned weakening of the judicial system. They warn that this would jeopardize fundamental rights.
Entrepreneurs are therefore becoming increasingly politically involved. They are largely financing the wave of protests that have been sweeping the country for around two months. In addition, many allow their employees to join the rallies during their working hours.
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