As coronavirus strikes, Israeli tech firms gear up to new normal

Tzahi Israel, the VP of global sales of Israeli tech firm OrCam Technologies Ltd., a maker of artificial intelligence-based devices to help visually challenged people see, was supposed to be in sales meetings in the US and Europe. Instead, like millions around the world, he is stuck at home, figuring out how to do his job remotely.

“Every month I travel abroad a few times,” he said in a phone interview with The Times of Israel. “The Israeli team manages sales activity around the world, and each week our salespeople travel from Israel, to meet distributors, customers and our employees abroad.”

All that has now halted, though the firm has set up online demonstrations and meetings with distributors of the company’s products abroad to make sure sales activities continue.

“We have also increased our online presence, to increase awareness about our product,” he said, and the firm, which has sold over 30,000 units of its products, made sure to increase the stock held abroad by distributors as soon as it realized that skies may be closed due to the coronavirus crisis.

The coronavirus, which has killed thousands globally and rocked economies, may deal the Israeli startup ecosystem and tech firms globally a harsh blow, Israel’s chief scientist and the chairman of the Israel Innovation Authority warned in an interview this week.

“I expect there will be many closures,” Ami Appelbaum.

Five percent of Israeli tech companies have already fired workers, and 64% have frozen new hires, an unofficial survey by Israel’s Viola investment group has shown. The venture capital firm queried 135 chief financial officers and human resources staffers at tech companies to study the effects of the virus on the Israeli tech industry.

In addition, global startup financing is already taking a hit, according to New York-based data firm CB Insights. Funding to private companies in the first quarter of this year is down nearly 12% compared to the same period a year earlier, on pace to reach $77 billion. This figure represents a 16% drop on fourth quarter 2019 funding, the data shows.

“Today more than ever cash is king,” said Eden Shochat, co-founder of the Tel Aviv-based Aleph venture capital firm which in December raised its third fund, garnering $210 million from investors. “The past crisis taught us that runway –meaning how long does a startup have — which is the amount of cash they have divided by their monthly burn — is the most important thing. Runway allows a startup to live and fight another day.”

The first thing Aleph did, as the coronavirus spread, was to make sure its portfolio companies “have the longest possible runway,” to make sure they have the time to reorganize to the new situation, Shochat said.

Aleph has been expecting a downturn in the market because of the cyclical characteristic of the industry, though no one expected the downturn to be caused by a medical phenomenon, he said. So, the VC firm has been hammering home to its portfolio companies “like a broken record, to load up on cash and maintain runway,” Shochat said.

“The vast majority of companies — we have 33 companies in our portfolio — have more than a year and many have more than two years” in runway terms, Shochat explained. As soon as the crisis started the VC turned its focus to those that didn’t have enough cash, injecting funds via internal funding rounds, helping bring in added investors and helping close funding rounds as soon as possible.

Raising money, both for VCs and for startups, looks to be almost impossible in these times, Shochat said, unless parties already have strong relationships with investors or were already in the midst of raising money.

“It seems that the whole market is taking a wait and see and approach,” he said.

The fact that Aleph has just raised its third fund enables it to hunt for opportunities now.

“We absolutely are investing,” Shochat said. “We are already seeing companies. If you look through history, some of the best companies were created in economic downturn, so innovation never stops.”

Convizit, a startup using AI technologies for the product analytics market, announced last week the closing of a $5 million seed funding round led by Pitango Venture Capital with the participation of an earlier investor, Jumpspeed Ventures.

The funds will be used to double the size of the team, accelerate product research and development, and launch sales and marketing activities, the company said in a statement.

“We had developed a relationship with Pitango way before,” said Daniel Bashari, the CEO and co-founder of Convizit, in a phone interview. “We are lucky we managed to close a funding round in a period like this.”

The startup, set up in 2017, has a total of 10 employees in Tel Aviv, Jerusalem and Ukraine.

“We are continuing to work as planned,” Bashari said, adding the firm has now an estimated two-year runway. Because it is an early stage startup, she said, the company does not yet rely on revenues, though it has signed agreements with firms for trials of its software.

The lockdown imposed on activities globally will prolong the sales process, she said. The firm was expecting to start sales at the end of the year, she said. “Now we estimate that sales will start in the beginning of 2021.”

Companies with technologies that help people move services online and stay in touch are faring better than others. Some are booming. The shares of California-based videoconferencing firm Zoom have surged since January, as the coronavirus has pushed millions globally to work from home and families to switch on the app to stay connected.

Israeli startup myInterview, which has created a video platform via which recruiters can interview potential job candidates, has also seen a “surge in demand,” said Eliav Rodman, chief marketing officer at the 3.5-year old firm.

Demand for video interviewing technologies has skyrocketed, he said. Via the platform, candidates get a link to answer a sequence of short questions using video. Then predictive analytic tools provide insights into candidate responses, creating a shortlist of best talent that recruiters can review in their own time. The startup’s customers include Facebook, Britain’s P&O Ferries and online supermarket Ocado, Rodman said.

myInterview, which raised $1.2 million from investors a year and a half ago, is now looking to raise added funds to grow. “From what I see most VCs are saying we are still in business. Recessions or tough times spawn more opportunities and creativity, they generate new needs,” Rodman said.

Companies globally are seeking to adapt to the new work from home reality, and while smaller startups and firms may need to let go of their workers, the bigger firms are trying to hold on to their talent and possibly hunt for more.

“We have moved to working from home,” said OrCam’s VP of Human Resources Anat Shenig.

The firm is not laying off workers, she said, and is actually continuing to look for new ones. “This is an opportunity to employ,” she said. “We had positions open and we have not halted the process.”

She added that she is not yet seeing a flood of new candidates on the market, but there are social media groups that are already advertising a variety of candidates looking for work as they have been let go from their other jobs.

Similarly, Wix.com, an Israeli website builder whose shares are traded on the Nasdaq, is also on the hunt for new workers.

“We are still hiring,” said Nir Zohar, the president of the tech firm, which has a market value of $5.5 billion. “We’ve not seen a lot of layoffs in tech yet, but if this situation lengthens then there is a chance it will start happening…. If startups start to fail because they lack funding and it is hard for them to raise more money, then there will be talent out there looking for a job, and obviously it is a great opportunity for us.”

The firm’s platform enables businesses, organizations, and individuals to develop customized websites.

Zohar said he doesn’t think the coronavirus crisis will have a significant impact.

“Our business is to work with and support small businesses around the world, and what is happening and what is going to happen to small businesses is devastating,” he said.

The Wix platform, he said, can help businesses move online at least for the time being. Coaches and trainers, for examples, can set up websites with which to continue their activities. It may not be “the most effective way to apply their trade, but at least some of those people I believe will now try and move online, and in that aspect Wix is a great platform.”

What is clear is that after the crisis — certainly if it is prolonged — things will likely be very different, and companies that will survive “will find a very different reality on the other side of the crisis,” Aleph’s Shochat said.

The future will hold far less competition as companies are forced to shut down.

And without that competition, surviving firms will now actually be able to “wait, look around, better understand yourself, better understand your world, and do long-term thinking,” Shochat said. “That, in a way, is a bright spot.”