The long wave of the Svb crash hits Israel, the startup nation
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TEL AVIV – The seat of the Silicon Valley Bank of Tel Aviv ideally has its back to California. Look west. In the direction of the sea and a setting sun that challenges the incoming haze without conviction. Sarona neighborhood, but everyone here is ‘Midtown’. A former German colony that has become one of the city’s financial and commercial districts in the last ten years. The bank is on the 25th floor of a glass tower. On the front door three black letters. The acronym of the bank. Inside, everything is still. Nobody in the offices. Nobody in the corridors, where silence amplifies the attentive noises of the cleaners. No one has set foot here since Friday. Last day open before shabbat. He is alone just hours before Silicon Valley Bank filed for bankruptcy sending home also i 45 branch employees. A financial earthquake that has alarmed the entire Israeli startup world. Hand in glove with California. More than 1,000 of Israel’s 8,000 startups had accounts with Silicon Valley Bank. Dozens of venture capital funds and national tech companies. All suddenly without credit lines in a difficult moment for the sector.
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A weekend of panic and waiting which also forced Prime Minister Benjamin Netanyahu, who had just returned from his trip to Italy, to intervene: “We have an obligation, to protect our companies. But our system is solid and we will demonstrate that what we have done over the past 20 years is to build one of the safest and most stable economies in the world.” Today the 15% of Israel’s 488 billion gross domestic product comes from the technology sector. Tech giants and start-ups contribute to the 54% of exports and employ 11% of the 5 million employees in the country. Numbers that are proportionally unrivaled globally. Effect of twenty years of policies designed to make Israel a “Startup nation”. And today for the whole world, Israel is the nation of startups. Born as an offshoot of Silicon Valley. Grown by developing an autonomous model over the years, but firmly anchored in the United States. Always a privileged partner.
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The Svb is just one example. The bank has had a branch in Israel for 20 years. And the Israeli authorities are well aware of the shadows coming from across the ocean. “Worried? Yes, I’m worried, but it’s my job to be.” Dror Bin it is the number one of the Israel Innovation Authority. The Israeli government body indicated to favor the birth of startups and develop their investments. “It’s too early to tell if there will be effects in the short or long term, but from what we know at the moment, many withdrew their money before the bankruptcy. The next few weeks will be crucial,” he explains. But one thing is certain: “This crash will lead to a further contraction of investments in the sector”. Went from 25 billion in 2021 to 14 in 2022. And 2023 could bring investments back below the 10 billion threshold. Lowest for over 5 years. There are hundreds of startups left without credit lines. About 90% of those who had an account with SVB were not insured. Translated: they immediately entered a liquidity crisis and risk not surviving for more than a few weeks.
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“Svb’s bankruptcy took us by surprise. The news came on Saturday. It was very active in Israel. I’ve known it for 20 years and its focus has always been the world of startups and venture capital”. Astorre Modena is the managing partner of Terra Venture Partners, an Israeli investment fund. “Some of our startups were involved too. Luckily only two, but they managed to withdraw their money in time,” he reasons. The hitech world is linked to dollars. In Israel in particular. Transactions are made in dollars. Israeli startups either open offices in the US or are bought by US companies. A destiny that involves more than half of them. And Svb was the bridge between Tel Aviv and San Francisco. “If an Israeli startup expanded into the US, they would open an account with them. So would venture capital funds. They had perfect tools for high-risk businesses like startups. And the startups preferred to open an account with them.” The Fed’s intervention to bail out SVB calmed fears. But only a little: “Companies will get their money back. But timing is unknown.” And time is of the essence for these companies. Many of the startups involved need liquidity to pay salaries. Carry out the development of own products. “If everything is resolved within a few weeks, there won’t be any problems. Also because a good climate of solidarity has already been created here among the entrepreneurs, who promise each other support and help. If the times were to be longer, the situation could get complicated”. The mist, for now, does not seem to want to leave the Tel Aviv horizon.
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