There’s trouble in Startup Nation

W
elcome to the TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. Want it in your inbox every Saturday? Sign up here.

Tel Aviv has the fifth most unicorn companies in the world. Yet, relatively little has been written outside of Israel about the major concerns local entrepreneurs are currently dealing with. We talked to one of them, MDI Health CEO Avishai Ben-Tovim. — Anna

To SVB and back

The Exchange recently noted how Sweden was punching above its weight in terms of startup dollars raised per capita. But Israel is even more outstanding when it comes to tech — so much so that it earned the nickname “Startup Nation.”

Israel’s tech scene is also remarkably resilient and relatively immune from the country’s global and local political woes. But in recent months, the Israeli startup ecosystem has found itself at the forefront of the protests against the government’s highly controversial judicial reform plan.

The reform, its opponents claim, would harm Israel’s democracy and its economy, in a country where the tech sector “makes up about 25 percent of Israel’s income taxes and contributes about 15 percent to the country’s annual GDP,” according to The Jerusalem Post.

Driven by these political and economical worries, major players from the Israeli startup scene took a public stance; Index Ventures, for example, “denounce[d] the proposed reforms in Israel that foster discrimination and threaten democracy.”

Others chose not to make official statements or formally join the strikes, leaving it up to their employees. But regardless of their position, many are concerned about the economic consequences that this political crisis might have.

These concerns have also turned into actions, especially finance-related ones. In January, Reuters reported that an Israeli venture capital fund and a local startup were moving their bank accounts out of Israel, and others similarly started looking into keeping funds in different locations.

MDI Health CEO Avishai Ben-Tovim was one of these. His health tech company, which has raised $26 million to date according to Crunchbase, is both Israeli and American. As political instability increased in Israel, it made sense to make good use of its Silicon Valley Bank account … until it didn’t. Ironically, Ben-Tovim found himself in the position of moving money back to Israel in a rush before the banking entity collapsed.

Despite the scare, Ben-Tovim is still set on doing “what is right in terms of risk management.” In his case, it means opening up more bank accounts in the U.S. — but now at bigger banks. This is also in line with the cash management advice that startup founders have now been given more broadly.

Founders, don’t put all your cash in one basket

Mitigating country risk

For Israeli entrepreneurs, the prospect of rising pressure on the country’s credit rating made banking diversification a more pressing issue. I spoke with Ben-Tovim before Israeli Prime Minister Benjamin Netanyahu suspended the judicial overhaul.

“I love this country, I am a patriot and I served in the army, but at the same time, [we are in a global market] and if risk raises in one place, you need to at least diversify and also move to where the risk is lower in order to serve your investors in the best way — and also your employees,” he said, alluding to payroll worries that arose during the SVB crisis. “There’s a lot of responsibility about managing a startup and looking [after] all these different stakeholders.”

Whether the reform will happen, and in which form, is still in the air. The shekel strengthened after Netanyahu pressed pause on his plans, but this might be temporary. Either way, the debate exposed a widening divide in Israeli society. Entrepreneurs will need to adapt — as usual.