Israeli tech advocate warns sector is leaving rest of society behind

While record investments are a testimony to the country’s resolve, opportunities for digital transformation were squandered, says Start-Up Nation Central exec

CTech 21:3528.12.20

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"This year surprised us all. It was a crazy year. Had you told me in March that we would end the year with $10 billion worth of VC investments I wouldn't have believed it," Uri Gabai, Co-General Manager at Start-Up Nation Central told Hagar Ravet of Calcalist during the Calcalist, Bank Hapoalim and Psgaot’s 2021 Forecast Conference.

We thought that we would see a lot less money flow into Israeli tech in 2020 and that did not happen.

"The scope of the investments is a testament to the resolve of Israeli tech and its ability to reinvent itself and change its operational models. On the one hand, when you look at the global landscape you see that this crisis accelerated processes that were already playing out at a very fast pace, as well as the move into tech. Technology is changing sectors and industries and coronavirus has given this a massive boost. When we are all home and you can’t move biological bodies around, you can move computer bits, and that made the entire world virtual. And of course, Israeli tech, which is built on software and is very strong in these worlds, received a big boost. Nevertheless, there are several warning signs that shouldn't be ignored. We are mainly concerned with the drop in investments in early stage companies because those are the seeds that will become successful companies in a few years and losing them at this stage could be dangerous."

Uri Gabai, Co-General Manager at Start-Up Nation Central. Photo: Courtesy

Other than the negative factor which you mentioned, there is also something else that isn't talked about as much and is only now being noticed. Israel's tech industry may have reached 2021 in a good state, but there were also expectations that the start-up nation would deal better with the digital transformation and things like remote learning and even the cyberattacks that we are experiencing.

"Undoubtedly. The gap between the tech sector, which is surging ahead, and the rest of the economy and Israeli society, which isn't moving at the same pace, is a phenomenon we have identified and pointed out in the past and this year was especially prominent. We had an opportunity that we squandered as a country, to take this industry and its capabilities to reinvent ourselves and pivot and solve these challenges in the digital world.

"Education is one of the most frustrating sectors. We already knew in May that we would be learning remotely in September and that Zoom provides a very limited solution. We had five months to prepare with this industry and that didn't happen. We also didn't fare any better than other countries when it came to digital health and remote healthcare. There is a warning sign here which we must pay attention to. Part of this is the result of the weakness of the political system, which is occupied with whether there will or won't be elections, rather than linking the engine of innovation, one of the best in the world, to the needs of Israeli society. Hopefully, we can do a better job making this connection in 2021."

Over recent weeks and months, we are seeing a lot fewer M&A deals in Israeli tech and a lot more IPOs, including in Tel Aviv. Is this due to the constraints of Covid-19 or a new trend?

"We are seeing the acceleration of processes. The Tel Aviv Stock Exchange should reflect the Israeli economy, which includes the tech sector that is displaying very strong growth. It is true that many Israeli companies are targeting Nasdaq and don't aim for the Israeli exchange, but small and medium-sized companies that are seeking a channel to go public can find a solution in the Tel Aviv Stock Exchange. This is part of the maturation of Israeli tech and a welcome trend. We would have arrived at this stage either way, but Covid-19 accelerated these processes. This presents an excellent opportunity, as is the entrance of institutional investors into tech. When you look at the global markets you can see that tech and innovation will set the tone in the 21st century. I'm really happy that 2020 connected those dots and the expectation is that we will see more Israeli companies growing organically in Israel and not just seeking an exit."