American unicorn investor: Why I am continuing to invest in Israel

I am continuing to invest in Israeli startups. Though I am a proud and overt Zionist, my decision to continue to invest is not just a matter of principle: there has never been a better economic moment to invest in startups in the Jewish State.

My fund, Heroic Ventures, has long focused on early-stage startups in Silicon Valley and Israel. There are exceptionally good reasons to do so, beyond my network, which is particularly strong in those geographies. Pound for pound, Israel has more large high-tech startup exits than any other country in the world. To put it into perspective, Israel and Europe have approximately the same number of billion-dollar-plus exits per year.

Michael Fertik

Israeli ingenuity, high-tech excellence, ambition, and entrepreneurial verve (go ahead, you can say chutzpah) are already the stuff of legend. They — and only they — are why investors from America, China, Japan, and Europe have flocked to Israel over the past ten to fifteen years. Israeli startup success is at the core of the Abraham Accords: can anyone possibly imagine a deal with Israel’s historical Arab enemies in the absence of the enormous economic prowess Israel has developed over the past two decades?

This will continue. There is right now a fulsome amount of handwringing both inside and outside Israel about the impact of the judicial reform debate on Israel’s reputation in the world. Let’s face it: Israel succeeds in spite of routine attempts to portray its every decision, indecision, and consideration as dastardly. As Abba Eban taught many years ago about Israel’s treatment at the United Nations, “\[i\]f Algeria introduced a resolution that the earth was flat and that Israel had flattened it, it would pass by a vote of 164 to 13 with 26 abstentions.”

It is true that something feels different this time. In response to the judicial reform proposals, we have seen historically large protests among Israelis, express references to “civil war,” and even the threat of a nationwide strike, which is the kind of thing Europeans have made national sport but which is, we may be thankful, exceptionally rare in Israel.

It is clear that, at minimum, the Israeli government has severely mishandled its communication about a set of policies that would, at least on paper, make Israel constitutionally more similar to, for example, Canada, a country that has perfected making a virtue out of being vanilla.

In my own circles of friends and businesspeople in the United States and Israel, the range of reactions runs the gamut from “this set of reforms seems dangerous” to “minorities are seriously at risk” to “Netanyahu should not have paired the reforms with the legislation protecting himself against removal from office” to “just a few years ago, the Left wanted judicial reform, too.”

In general, among my more informed peers, the concerns include puzzlement as to “why the big fuss?” as well as “let’s hope Israel doesn’t do this because we are afraid that the Jewish State will be left further isolated even among her truest friends in America.”

This last part is what is causing heartburn among the investor class. Sometimes, fear begets fear. Even rational people can begin to behave fearfully when they perceive irrational people doing so. Just a few weeks ago, Silicon Valley Bank collapsed in a speed-record bank run when rational actors withdrew their funds after seeing irrationally fearful people doing the same.

Today, Israel is experiencing a bank run. Some investors are declaring that they won’t invest if judicial reform passes. Others are saying that others won’t invest, which is often tantamount to the same thing. Still others — I among them — are urging Israeli policymakers to take good care to ensure that the judicial reform proposals and compromises are exceptionally well communicated so that reasonable people outside Israel can begin to understand what they actually entail.

Longtime politically neutral or pro-Israel investors are under pressure from perennially anti-Zionist parties who taste blood. A handful of Israeli entrepreneurs are getting press for ankling their homeland in favor of the sunny shores of Spain (good luck with that) or southeastern Europe (oy vey). Even some local Israeli VCs are beating their chests about how they will take their business elsewhere.

Come on. This, too, shall pass, and Israel will be stronger for it. Though many people say we are in the Golden Age of Israeli startups, the truth is that the Golden Age is just now beginning to dawn. The coming years will be the best ever on record. There will be more great Israeli companies, more Israeli entrepreneurs with experience and capital to self-propel, more extraordinary innovations, more exceptionally hardworking CEOs and engineers, more capital, and more fabulous exits.

The horizon of successful startup investing and founding is never immediate- or short-term. While political alarmists and economic twits head for the hills, I’ll be heading for the Judean hills. I have confidence in the future, and I am confident Israeli democracy will not only survive this test but thrive through and beyond it.

I am putting my money where my mouth is. Just a couple of weeks ago, even in the very wake of the SVB crisis that shook the startup world, even in the midst of the tremors that are shaking Israel’s political firmament, I wired a large check to a marvelous new Israeli startup. And I am open for business and looking for more.

Kadima.

Michael Fertik is the Founder of Heroic Ventures, a Silicon Valley-based serial entrepreneur, and early-stage venture investor. His portfolio includes Israeli unicorns NextSilicon and Sunbit.