VC warns: If Israel democracy is harmed, tech firms will need to flourish elsewhere

TLV Partners says makeover of justice system could force best minds to leave and local tech entrepreneurs to create startups outside of Israel

Sharon Wrobel is a tech reporter for The Times of Israel.

TLV Partners is managed by (left to right): Rona Segev, Eitan Bek, Adi Yarel-Toledano, and Shahar Tzafrir. (Eyal Tueg)
TLV Partners is managed by (left to right): Rona Segev, Eitan Bek, Adi Yarel-Toledano, and Shahar Tzafrir. (Eyal Tueg)

Tel Aviv-based venture capital firm TLV Partners this week joined a flurry of top executives and finance firms in a warning that the judicial overhaul planned by the new right-wing government threatens democracy and is poised to harm the thriving local tech industry.

“If Israel’s democracy is harmed, the hi-tech industry will wither or flee abroad. The best minds will leave, Israeli entrepreneurs will establish companies outside of the country’s borders, the country’s credit rating will be affected (S&P [Standard & Poor’s] has already announced that the legal reform could lower Israel’s credit rating), and so on,” the VC’s four partners — Rona Segev, Shahar Tzafrir, Adi Yarel Toledano and Eitan Bek — warned in a letter to the public.

“An entire industry that holds the country on its shoulders will be forced to look for another place to bloom,” they warned. “The damage is enormous and it will affect everyone – left, right, religious, secular, Arabs and Jews”

TLV Partners was founded in 2015 by entrepreneurs and venture capitalists Segev and Bek, formerly with Israeli VC firm Pitango. They are joined by Tzafrir, previously with Magma Venture Partners, as managing partners, and Yarel-Toledano, also formerly with Magma, as partner and chief financial officer. To date, the VC has raised close to $1 billion that has been invested back into at least 45 Israeli companies focused on fintech, deep tech, healthcare, cybersecurity, e-commerce, and property tech. The startups TLV Partners has invested in have raised more than $4 billion and employ more than 4,000 people.

Its portfolio companies include Israeli AI medical imaging company Aidoc, insuretech firm Next Insurance, data tech startup Datagen, and Quantum Machines, the developer of a standard universal language for quantum computers and a unique platform that helps them run.

“The large sums of capital invested in our industry are its sunshine and water,” the VC executives said. “But no flower can bloom on rotten soil.”

Last year, the funds raised by Israeli startups almost halved, dropping to $15.5 billion after nabbing a record $27 billion in 2021 mainly from foreign investments. This accounted for $18.64 billion of the total capital, or 73%, a similar share to 2019 and 2020.

Earlier this week, Barak Eilam, CEO of Israel’s Nice Ltd., a cloud-based software provider, cautioned that the judicial upheaval is poised to have irreparable consequences for Israel as a hub for doing business and attracting investment.

The concerns raised by senior business executives come as Justice Minister Yariv Levin last week proposed a judicial overhaul that would severely limit the High Court’s ability to strike down laws and allow the Knesset to re-enact legislation that the court has struck down. It would also give Benjamin Netanyahu’s government control over judges’ appointments and allow ministers to appoint their own legal advisers.

Proponents say the changes are needed to rein in a judiciary undermining the will of the people, while critics argue that it would remove an essential check on legislative and executive power, gutting democratic elements of the governing system.

“The Israeli hi-tech ecosystem was built upon freedom of expression and the support of innovative and creative thinking. It thrives in places where people have rights and freedoms – after all, what is the hi-tech industry if not a mosaic of all of the people who work in it,” TLV Partners wrote in the letter. “These are values that the current government is trampling. The current steps that have been taken to paralyze the justice system and recklessly disrupt the balance between authorities, drastically harm democracy.”

Other critics also argue that the overhaul will remove all checks on government power and endanger the rights of minorities and vulnerable elements within society.

“An unbalanced system is a dangerous system for everyone, both collectively and individually. It is dangerous for the majority and the minority. It is dangerous for the right and the left. And it is our duty to prevent it from happening,” the TLV Partners letter said. “We say these things with a heavy heart and great pain, and we hold hope that the destructive actions will be stopped before it’s too late.”

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