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Flying the coup: Following the money, employees leaving Israel too


Flying the coup: Following the money, employees leaving Israel too

The closing of international development centers and the brain drain are the biggest threats to the economy in the long term

Sophie Shulman | 11:54, 09.03.23

The bomb dropped yesterday by Riskified is a much bigger and more significant event than the announcements by some startups regarding the withdrawing of funds from Israel. When a company that trades on the New York Stock Exchange at a value of one billion dollars admits that there is a fundamental internal problem in the country where it is registered and where most of its employees are based, this escalates the drama unfolding in Israel by several notches.

This is no longer a personal whim of one entrepreneur or another, as the coalition in the government tends to attribute to the protestors. The decision of Eido Gal, co-founder and CEO of Riskified, to withdraw all of the company's cash reserves of $500 million from Israel and promote the establishment of a development center in Lisbon, to which some of the employees in Israel will be moved, carries heavy consequences.

Unlike startups, where the shareholders are only professional investors, a public company is based on a wide range of small private investors. They don't need this unnecessary headache when they realize that Riskified is sitting in a country where democracy is under threat.

Riskified may be a great Israeli success, but it is not the only fintech company that has developed a solution to prevent fraud in online stores, and it is certainly not the best of them all. There are other fish like Riskified swimming on Wall Street, especially after the flood of 2022. For Gal and the board of Riskified, who voted unanimously to withdraw the cash from Israel and expand the development center in Lisbon, it was clear that the news would reach investors and there would be a strong reaction.

Yesterday, Gal sent a letter to the employees of Riskified, which was revealed for the first time by Calcalist, in which he wrote that, “given the quick pace in which Israel is changing I wanted to articulate my position in writing and share the actions our company has taken.

“The laws being passed can lead to the dismantling of our independent judicial system. In high likelihood, this will lead to a meaningful and prolonged economic downturn in Israel. More importantly, this will result in Israel changing from a democracy with liberal values into a more authoritarian state. I believe that only bad outcomes will come from this ‘reform’.

“In the context of everything, with the long-term success of Riskified in mind, we have taken the following actions:

“1) We are moving essentially all of our $500 million in cash and equivalents out of Israel. Our concern is that as the financial situation continues to deteriorate, and in order to maintain financial stability, the government will limit transfers and withdrawals of large amounts.

“2) Expanding hiring for our R&D site in Lisbon. We have limited relocation packages available but can also support individuals who are interested in making the move on their own.

“3) Participating in protests is encouraged and does not count against vacation days. This might be a marathon and not a sprint so please discuss with your manager how to minimize any impact on our deliverables.”

Anyone who knows Eido Gal and Assaf Feldman, the founders of Riskified, was surprised yesterday that they were the ones to send out such a dramatic, poignant and unequivocal letter. However, even though Gal has been living in the U.S. for the past few years to promote Riskified’s business, he is involved and contributes to the protests activity.

Gal and Feldman are "geeks" in the full sense of the word - addicted to technology. Even on the day of the company's IPO at an incredible value of $3.3 billion at the height of the hype in 2021, it was difficult to extract any signs of excitement from them. They mainly talked about their product and a little about fatigue after the exhausting road show.

Gal is not one to come to give a speech at the demonstrations, unlike Eynat Guez from Papaya, for example, who was the first to announce the withdrawal of funds from Israel. He will also not be interviewed in the studios, unlike Assaf Rappaport from Wiz, who became one of the symbols of the success of Israeli high-tech, and is also prominent among the leaders of the protest. Gal, unlike managers with a higher media profile such as Nir Zohar from Wix or Adi Soffer Teeni from Facebook, will also not go to meet with politicians in an attempt to reach a compromise.

Riskified has developed software that allows an online trading site to identify customer fraud and last year its revenues reached $261 million while losing $100 million. Since the IPO, the company's growth rate has slowed, which also resulted in a 70% drop in its stock, and in 2023 it should reach $300 million in revenue while reducing losses. Riskified employs 780 people, of which 550 are in Israel.

For all these reasons, the letter Gal sent yesterday to the employees of Riskified, who of course are not all Israeli and aware of what is happening here, is an earthquake. Also the amount at stake, again unlike startups, is of a different order of magnitude. However, arguably the biggest is the expanding of the development center in Lisbon. For several weeks now, Calcalist's newsroom has been hearing about more and more requests for relocation by employees of companies that also have international operations. Gal also put this on the table when he offered the workers "relocation packages" which, although limited, would allow a certain group of workers to move from Israel to Portugal.

Moving workers outside of Israel is the scariest scenario of all. Israel, which sits on huge dollar reserves, can manage without the several billion dollars that high-tech companies spend here, and a weak shekel also has advantages in terms of exports.

But the removal of the development centers and the brain drain from Israel are the major threats that will harm Israel's economy in the long term. These actions cannot be reversed either. The dollars can be moved back in the middle of the storm with the push of a button, but moving workers from country to country is a difficult task like no other. Israel has enjoyed in recent years, and especially since the outbreak of the Coronavirus, an influx of high-tech experts, including the most senior ones. Nir Zuk, the founder of the cyber giant Palo Alto Networks, is the clearest example of this. The return of techies who held senior positions in Silicon Valley allowed Israeli companies to take another leap forward while basing themselves on a local management avenue without the historical need to fill management positions abroad. Now these processes have come to a grinding halt and a process of transferring talent away from Israel begins, which puts the high-tech locomotive on a slope at the end of which it may find itself going back twenty years.

"The decision of Riskified’s management is very well-informed and it is not a matter of defiance against anyone," says Aaron Mankovski, a partner in the venture capital fund Pitango, which is one of the shareholders of Riskified. Mankovski is a board member of the fintech company that made a unanimous decision on withdrawing the money from Israel and expanding the company's development center in Lisbon, including the relocation of some of the employees from Israel to Portugal. "Every company has a problem operating under conditions of uncertainty. The management's job is to reduce risks as much as possible and that's what we did," added Mankovski.

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Do you believe that the damage done to the local high-tech industry is still reversible?

"There is already irreversible damage. We are starring on the front page of all the press in the world. The world sees the debate here. There is no doubt that if the coup passes, there will be irreversible damage to Israel's economy. The damage and the fear is from the people moving abroad. Riskified sees their employees and does not want them to go to work for other companies in the U.S., and in addition, it is very easy to transfer the development to Lisbon."

According to Mankovski, "until today it was possible to work with any government, but now everything has become unpredictable. As a responsible company, you cannot leave the money in Israel in this situation. Intelligent and expert foreign investors from all over the world have objected to the reforms and also sent letters. Moody's report is laos a punch in the face."

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