Tech Sector Soaring Despite Boycott
Wed, 05/28/2014
Israel Correspondent
The Zula team
The Zula team

Tel Aviv — The uproar over threats of an economic boycott against Israel puzzles OurCrowd founder Jonathan Medved.

Our Crowd, a venture capital firm that gives a select group of individuals a chance to co-invest in Israeli start-ups, recently completed a campaign to raise $25 million through an equity sale. Did the threat of growing efforts to divest money from Israel and boycott business dealings impact the sale?

A non-factor, said Medved, who had to expand the amount he raised by 25 percent to accommodate demand.

“Maybe [boycott activists] got the message out, but it’s certainly not being received by the world’s tech investors. You don’t feel it,” he said. “Our investors come from 30 countries around the world. I’ve been everywhere from Africa to Australia, to Asia to Latin America, and I’ve never seen more excitement about working with Israel than ever before. If this is a result of the boycott, give me more.”

The veteran Israeli venture capitalist added that he hosts an endless list of foreign visitors from countries spanning Europe, Asia and Africa — all of whom come here to learn from Israel’s success in technology innovation or look for ways to partner with Israeli companies.

Executives at other veteran venture capital firms like Jerusalem Venture Partners tell similar anecdotes about the flow of foreigners to Israel looking to glean wisdom about entrepreneurism and technology.        

That pull of Israel’s tech success is proving many times more potent that efforts by Palestinian solidarity activists to declare a boycott of Israel’s economy or the settlements in the West Bank. Despite political threats, Israel’s technology industry can’t be ignored. Multinationals continue to expand research and development operations in Israel, and look for acquisitions. When they travel to Israel, start-up entrepreneurs look for inspiration to bring home. That’s a positive development likely to boost Israel’s image abroad even as prospects for peace seem dim.

“It’s much more than soft power — this is the future of our diplomacy,” said Medved, referring to Israel’s thriving tech sector. “We have a national brand, and it’s called ‘start-up nation,’” he said, referring to the 2009 book of the same name by Dan Senor and Saul Singer, which carried the subtitle, “The Story of Israel’s Economic Miracle.”

“Instead of letting our enemies define us,” Medved continued, “we are defining ourselves.”

Prime Minister Benjamin Netanyahu and other tech executives like to note that a true boycott of Israeli products would require users to give up practically every gadget in their possession, given the scope of the country’s technological prowess. Moreover, the technology business world isn’t driven by politics. Software companies can sell virtual products, helping avoid the psychological barriers of a product with the “Made in Israel” label. 

“The high-tech community in general, for good or for bad, is an extremely apolitical community,” said Jacob Ner David, who is the chief executive of Zula, a mobile messaging start-up catering to businesses.

Even in the Middle East, the cradle of the decades-long boycott of Israel’s economy by the Arab states, thirst for innovative technology outweighs the political considerations. Ner David said he experienced this first-hand recently when he represented Zula at a high-tech conference in Dubai. He said that he didn’t hide the fact that Zula is based Israel, and that no one confronted him over it.

“[The boycott] had zero effect; it just doesn’t come up at all,” Ner David said. “One of the reasons being: What does it mean to boycott software? If an app is developed in Israel, is anyone going to know it? And if they know it, what are they going to do about it?”

Ner David noted that the Dubai conference was dominated by U.S. computing giants like Google, Microsoft and IBM, even though all of them have substantial research operations in Israel. Zula — Hebrew slang for a “hidden hangout” — has corporate users throughout the Middle East. Ner David agrees that a true economic boycott of Israel is nearly impossible because of its impact on technology, making the notion of an economic boycott “silly.”

“What goes for Zula goes for many companies,” he said. “If there’s an article in TechCrunch [the popular news website devoted to information technology] about your company… there’s going to be users all over the world.”

That said, there are some in Israel’s government who are worried about the prospect of an economic boycott. Speaking in January, Finance Minister Yair Lapid warned that if peace talks were to falter, Israel would risk exposing itself to a European boycott that could spur unemployment and inflation. While he cited figures from a study from his ministry, Lapid hasn’t raised the specter of a boycott again.

Investment in Israeli start-ups appears to be more robust than ever. According to a recent survey by the IVC Research Center, Israeli tech ventures raised $673 million in the first quarter of 2014, a surge of 50 percent from the same period in 2013. It’s the second highest quarterly total at least since the end of 2008. Only 16 percent of those investments came from Israeli venture capital firms.

It turns out that Israeli high tech isn’t the only Israeli business attracting foreign investors: Two Israeli energy exploration companies with the rights to offshore gas finds raised about $2 billion by selling corporate bonds, mostly in the U.S. and Europe, to investors bullish on the prospect for gas exports.

This past week offered more evidence regarding the resilience of Israeli high tech to politically motivated threats: the arrival of a 350-person business delegation from China — a country with strong ties with Iran — that visited Israel to look for joint ventures and investment opportunities. Headed by China’s deputy prime minister, the visit was the occasion for celebratory announcements of joint projects — most notably a $300 million collaboration between Tel Aviv University and Beijing’s Tsinghua University.

“We are delighted that one of the world’s economic powers is showing such a vested interest in Israeli innovation,” said Israeli chief scientist Avi Hasson in a statement. “The agreements signed today will help many Israeli companies to expand into the Chinese market, and marks the next stage in the economic and technological relationship between our two countries.”  

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