"We're about to see the destruction of our home. We can’t afford to allow this to happen"
In an exclusive column for CTech, Tom Livne, founder of Verbit, shares his personal thoughts on the turmoil in Israel and why it’s not too late to rectify the situation
To understand the reason for the collapse of Silicon Valley Bank, you first have to go back a few steps.
A little over two years ago, the world was exposed to the coronavirus (yes, we've already managed to nearly forget it). It paralyzed the world, and as a result, the central bank in the U.S. printed trillions of dollars that created a bubble of equal value in global and Israeli high-tech.
I like to call it the 'COVID Tech Bubble'.
During the years of 2019-2021, Israeli tech companies raised tens of billions of dollars. A large part of these funds were deposited in SVB. Since the bank did not need all these sums for its day-to-day operations, it deposited a considerable amount of the money in 10-year U.S. government bonds at an average interest rate of 1.7% per year. Meaning, the money is guaranteed and even bears interest, so the move itself was very legitimate and standard bank operating procedure at the time. So, what’s happened since then?
Capital raising weakened during 2022. Therefore, significantly less new money flowed into the bank. At the same time, companies are still burning money, so the amount of money on the bank's balance sheet has greatly diminished. In addition, SVB increased lending to private companies. The problem is that since the time of the original deposits, interest rates in the world have risen dramatically. Therefore, the prices of the bonds have fallen.
The bank sold the bonds at a loss estimated at about $2 billion, which damaged the bank's balance sheet and required it to raise capital. The capital raise and unfortunately weak communications from SVB sent the bank’s stock plummeting and this caused great panic among the VC community, including Peter Thiel, who instructed his portfolio companies to withdraw funds from the bank, which eventually led to its collapse (a classic 'run on the bank').
The U.S. government announced a bailout plan for the depositors in SVB, and we should all be grateful to Janet Yellen, who handled the crisis with tremendous skill. She has proved that there is someone that can be trusted. Could this be the sign of the beginning of Lehman Brothers 2.0?
According to Paul Krugman (and I agree), the answer is no.
How does this affect Israeli high-tech and Verbit in particular?
Verbit is one of the leading technology companies in Israel and has raised over $600 million to date. It has over 1,000 employees and tens of thousands of freelancers (who work on the platform to support their families). It serves over 4,000 clients such as Google, CNN, The Library of Congress, Stanford University and others.
The demand for our service is only increasing, and I am proud to say that Verbit is one of the fastest-growing companies in Israel and globally. The beauty is that we are just getting started, our goal is to establish Verbit as one of the largest technology companies ever built in Israel.
We are at the peak of our energy and activity, and now our technology impacts hundreds of millions of people in the world. For example, we transcribed the Super Bowl this year and made it accessible to over 100 million viewers in the U.S. We also transcribe the Holocaust testimony of survivors in a unique project, plus we transcribe classified materials for the Israel Defense Forces, and more.
Unfortunately, as part of what I consider to be the brainwashing of the people of Israel, there are political parties that spread fake news that also includes libel. I won't sue them for the vile lies they wrote about me, but I will adopt their new branding of me as the "Israeli Elon Musk." After all, we both drive Teslas. As such, I will continue to invest my energy into the growth of Verbit and its establishment as the leading and largest technological transcription company in the world.
Verbit continues its mission to make the world more accessible. I'm proud to announce that I'll be joining as President of the Board of the Israel Accessibility Association to help Yuval Wagner, the association's Founder and Chairman, in his journey.
In the army, I was a fighter in an elite unit, taught that courage wins and what doesn't kill you makes you stronger. We have gone through many bumps in our journey that started only six years ago, and now we face another milestone as we strive to realize our ambitious vision for the future. I commend all of our employees; you are our most significant asset, and we would not have been able to do it without you. In my previous article I was asked to write for Israel's Independence Day, on how to encourage entrepreneurs at the beginning of their journey. I talked about one of our company's values, which is to "do good" in the world through advanced technological accessibility processes. This time, I'll touch on our second value: "win together."
To sum it up, as soon as the central bank announced the backstop of deposits, the potential damage from SVB to Israeli high-tech companies and Verbit in particular was fully mitigated. All Verbit had to do as a result of the collapse of SVB was to provide our happy customers with a new payment method for the services we provide them.
Additionally, about a month ago, I was interviewed by Channel 12 News and my words were slightly edited. It is important for me to clarify what I said. What I intended to communicate was that if the reform is approved, then I, Tom Livne, resident and citizen of this country, am not interested in staying and living here. Therefore, I would leave the country.
At the end of the day, we have no other country, however, I am hopeful that by the end of the next month we will be able to reach an understanding regarding the reform. My comments were about me as an individual not about the plans for Verbit as a company.
I am sorry to have to disappoint the slanderers (who only encourage me more) who were happy for the Schadenfreude and sarcastically wished "good things" of all kinds on me.
Perhaps I was among the first - because of my certification, training, and legal background - to understand the magnitude of the "reform" and had to shake the foundation of things in my previous interview. Since then, the best citizens in the country have gathered together in a huge protest movement.
As of the writing of this column, the reform passed in its first reading. In high-tech, there is the signing and then there is the closing. In my career, it's never happened that the agreed upon terms at the signing differed from the final terms. For me, if the reform passed in the first reading, then the wording of the second and third readings should be the same, and if the reform is approved - similar to what was approved in the first reading - there will unfortunately be a massive civil crisis in my beloved Israel.
The power lies with the coalition, so I expect a confidence-building step from them. Let there be no misunderstandings here. I am in favor of the legal reform, but the devil is in the details. Some data: The State of Israel ranks last in the OECD in that we take 975 days from the day a lawsuit or indictment is filed until the day the case is closed. If we invest in the required technology, we can improve this figure substantially. The proposed reform does not help businesses or legal certainty or streamline processes, and fatally undermines the principle of separation of powers, which as far as I am concerned is the basis of a democratic state. If we get the judicial reform right, it will make Israel even more attractive for investment and the creation of wealth. If we get this wrong, it will be a major deterrent to our economic growth and cause instability in the country.
Verbit specializes in legal tech, with an emphasis on the digital transformation of the evidence gathering process inside and outside of courtrooms. As a lawyer who grew up here, I’d be happy to contribute my knowledge to the legal reform. I am not a politician (and never will be), but I would love to lend a helping hand to try to reach a solution together, according to the same values we have at Verbit - "lets win together!"
I recently met with the Minister of Finance face-to-face (and he is not the only government leader I've met) after his tweet touched my heart. "We are brothers" he wrote, and I was very impressed by his attitude as the Minister of Finance. I felt that there was a real partner there who wanted to work together and win together. We even agreed on having a follow-up meeting with high-tech executives as soon as possible, and I believe that this will happen in the near future.
My main message is that we have no other country - Together we will survive, apart we will fall. It is important that every Jew around the world has one country to always return to, and that is the State of Israel. In order to win, we have to win together - both in politics and in business. In my opinion, we should strive for a constitution for the State of Israel, and my dream is a unity government (without corrupt people in power) and citizens living together in a Jewish, liberal and democratic country.
But let's not get confused. We're about to see the destruction of our home. None of us can afford to allow this to happen.
Tom Livne is the Founder and CEO of Verbit