Israel’s ‘Startup Nation’ Braces For A Political Earthquake

JERUSALEM — It was supposed to be a dazzling affair, a debutante ball to introduce Israel’s innovators to investors looking to make money off solutions to this region’s mounting crises.

Three years after the pandemic halted global gatherings, a top Israeli tech conference was back and ready to wow capitalists venturing to the Jewish state for the first time. The message of the 10th annual OurCrowd summit was clear: Israelis prided themselves on transforming a desert country into a verdant agricultural powerhouse quenched with desalinated seawater, and now their “startup nation,” as homegrown Silicon Valley types are fond of calling the country, was ready to export planet-saving technologies to the rest of the world.

The lineup included companies with novel ways to make green hydrogen fuel, fresh spins on wind turbines, and drones that do everything from planting trees in remote forests to surveying farm fields. Included in OurCrowd’s audience for the first time were investors from rich, Muslim-majority nations such as the United Arab Emirates and Bahrain, which only recently normalized relations with Israel.

Standing amid gleaming exhibition booths and the buzzing crowd of angel investors and greentrepreneurs, you could be forgiven for forgetting that the conference’s host country is in the midst of one of the biggest domestic political crises in its history.

The new far-right Israeli government is moving to reduce the power of the country’s Supreme Court, prompting an eruption of impassioned protests from Israeli moderates and liberals who feel that the changes endanger Israeli democracy. Occasionally, the political tensions poked through as members of Israel’s vibrant business community reckoned with the implications of the latest paroxysms for their bottom lines.

Conference attendees who landed in Tel Aviv the Monday before the summit found themselves in the middle of the biggest protests in Israel’s modern history. Cars honking and waving blue-and-white flags zoomed past taxis all afternoon on the one-hour drive east to Jerusalem from the airport. As many as 300,000 demonstrators filled the streets of the ancient city that evening to express outrage over the government’s radical plan to change Israel’s legal system.

Visitors looking for a sense of the new Israeli government’s climate priorities might have traveled 90 minutes south the next day to the desert city of Be’er Sheva, where Ben-Gurion University hosted a day-long climate conference and invited Idit Silman, who became the country’s top environmental regulator in January, to speak. The environment minister hardly uttered a paragraph of her speech before protesters dramatically shouted her offstage.

To supporters of the government’s proposed legal changes, the Israeli judiciary’s tradition of appointing its own judges has given it too much veto power over elected lawmakers while insulating the courts, which are widely seen as more liberal than the legislature, from the public’s will.

To opponents, the move would strip the judiciary of its independence and allow Prime Minister Benjamin Netanyahu to hand-pick friendly judges as he faces criminal corruption charges and pursues controversial policies with the most ideologically extreme government in Israel’s 75-year history.

The impasse could spark a constitutional crisis in which the Knesset enacts the law limiting the courts’ power, the Supreme Court rules the legislation illegal — and the rest of the government must decide which branch gets the final say.

But when Israeli President Isaac Herzog strode onto the brightly lit stage in the auditorium of Jerusalem’s International Convention Center to address the OurCrowd conference attendees that Wednesday morning, he cast the fight over his country’s democracy as a family squabble.

“I’m very proud of my brothers and sisters, the Israelis who are taking an active role in the debate from all its sides,” he said, speaking in English. He paused. “All I can say about myself –”

Applause erupted. He waited. Then the president, whose role is mostly ceremonial in Israel, gave the kind of pitch you might expect to hear in a boardroom where the stakes don’t include the future of one of the world’s richest and most contested democracies.

“All I can say about myself is that I’m doing my best to direct the debate into a constructive dialogue that will lead to an agreed-upon result that will strengthen and foster and protect Israeli democracy,” Herzog said.

“I cannot promise 100% results. I can promise 100% effort,” he later added.

That uncertainty hung over the conference like a cloud. Last month, Goldman Sachs cautioned in a memo that “growing concern” over Israel’s judicial reforms posed a threat to the value of the shekel. A week later, JPMorgan Chase warned that the political changes could trigger a credit downgrade like the one Poland suffered following its own judicial reforms in 2016.

“Let me choose my words carefully: Everything that diminishes Israel as a democracy is going to have a negative impact on companies like H2Pro, on our ability to do business here, and on our ability to do business globally,” said Talmon Marco, a prominent entrepreneur who now leads the hydrogen fuel startup H2Pro. “We are concerned, as are most people in the business world.”

Asked if there were any “foreseeable” scenario in which he might decide to relocate the company’s headquarters outside of Israel, he sighed: “Let’s see what happens. Let’s hope the current administration chooses to maintain Israel as a democratic country.”

Little about the look of the conference suggested the confab was taking place in the capital of a nation undergoing such strife. Thousands packed vast convention halls on multiple floors, dining from buffets of star fruit and persimmon and queuing up for espresso. Company stalls with swag that included branded yarmulkes lined each room. More men paired suits with sneakers than ties. Everyone wore lanyards, the markings on which determined who was welcome in the more luxurious private lounges.

But politics pervaded discussions onstage as panelists from abroad hinted at solidarity with either side through vague platitudes about democracy and stability — and on sidelines as attendees swapped tips for avoiding protest-induced travel delays.

Companies like Taranis, a Tel Aviv-based startup whose package of software and hardware helps farmers conserve water and pesticides, feared that damage to Israel’s international reputation could drag down firms whose primary customers are overseas.

“‘Startup nation’ appeals to some people in the Midwest,” said Josh Weisman, the company’s vice president of sustainability, referring to the U.S. region where Taranis has the most clients. “If something happens that makes Israel less sexy, it could have some effect.”

Some tech companies were openly participating in the protests, giving workers the day off that Monday to take part in the marches in Jerusalem and even funding some buses to transport employees to the demonstrations. That alone seemed striking to Doron Gez, a marketing executive with 20 years of experience in Israeli tech.

“In the long run, there will still be great technology coming out of here,” he said of his country. “But this might have an effect on the near future.”

If Herzog could actually broker a compromise with the new government, investors’ concerns would likely be allayed, said Michael Gordon, whose firm Blue Tree Technologies uses a custom filtration system to remove disease-triggering sugars from juices and malt drinks and plans to expand worldwide in the next year.

“Money is always looking for stability. The president is aiming for stability. As long as there’s stability, Israeli innovation will thrive,” the chief executive said in front of Blue Tree’s booth on the convention floor. “I’m not a politician. I don’t know how to keep stability. But as long as there is stability, there will be enough funding for Israeli innovation.”

Stable demand for fruits and vegetables — and new ways to keep them fresh on what are frequently long journeys from plantations on one continent to grocery shelves on another — eased Nimrod Yavo’s fears as he considered Israel’s political woes.

“If there’s an economic problem, everything is affected,” said Yavo, whose company Sufresca plans to sell its edible coating for keeping fruits and vegetables fresh in Europe and North America once regulators approve. “But people need food. And we’re in the food business.”

Since Jewish settlers declared an independent Jewish state in British-administered Palestine in 1948, Israel has weathered frequent political crises. The highly polarized nation went to the polls five times in the last three years as coalition governments failed repeatedly to hold narrow majorities together in the Knesset. Still, Israel ranked as the world’s fourth best-performing economy last year.

“We have 81 countries coming here to talk about food tech and quantum computing and space and how do we feed the world and how do we save lives — these are big fish to fry,” said Jon Medved, the chief executive of OurCrowd.

“Israel’s shekel has been the only major currency to outperform the U.S. dollar in the last decade, and Israel’s credit ratings have always been superb,” he said. “This is not something I’m losing sleep over.”

Political turmoil has rarely taken a financial toll on Israel in recent years, even as calls have grown to boycott, divest or sanction the country over Israeli security forces killing Palestinian civilians, including the American journalist Shireen Abu Akleh, who was shot dead by an Israeli sniper last September.

Last October, the financial research firm Morningstar, whose rankings guide investors on whether a company’s environmental and social impacts are positive enough to qualify for special funds, changed the way it judges Israeli firms with operations in the occupied territories, according to a lengthy report by the New York-based magazine Jewish Currents. Morningstar stopped using data from the United Nations Human Rights Council as part of its calculus for Israeli companies, handing a victory to a little-known advocacy group campaigning to recast investor scrutiny of Israeli military brutality as antisemitism.

Israel’s Supreme Court has hardly stood in the way of the country’s more controversial laws governing the status of its non-Jewish citizens. Last summer, the high court upheld the legality of legislation to strip Israelis convicted of terrorism, treason or espionage of their citizenship, even if it renders the individual stateless.

But opponents of Netanyahu’s judicial reforms fear their passage will make it easier for Jewish settlers to build illegal towns on Palestinian land — and remove a key check on a government stacked with hard-line officials. Considered by many an anti-Arab bigot and political provocateur, Itamar Ben-Gvir, the new national security minister, hails from a far-right party with ties to the Jewish extremist group that in 1995 assassinated Israeli Prime Minister Yitzhak Rabin for forging a peace deal with Palestinians.

Whether the reforms pass or not, Matan Hazanov, the managing director of Toronto-based Verstra Ventures, said his venture capital firm would continue to invest in Israeli companies.

“It’s an ecosystem uniquely resilient to political machinations evidenced by its decades-long growth despite the frequent political controversies, whether real or manufactured, foreign or domestic,” he wrote in an email. “So long as Israelis keep innovating, and I believe they will, I don’t think there will be a long-term negative impact to the tech ecosystem.”

But Michael Sonnenfeldt, the American chairman of the clean-tech investment firm MUUS & Company, saw the current situation in starker terms. Speaking on stage at Ben-Gurion University’s climate conference that Tuesday, Sonnenfeldt recalled how his father, a young Jewish refugee, had served as Nazi leader Hermann Goering’s personal translator during the Nuremberg war crime trials that followed World War II.

“I’m very hesitant to make specific criticism as an outsider,” he said in English, one of the only speakers who did not present in Hebrew. “It’s always easy to blame the government.”

Still, and without drawing any direct parallels, he said: “My father always said the downfall of Germany came the minute Hitler demanded that the judges swear allegiance to Hitler instead of the state.”

Exactly one week later, the Knesset defied public outrage and voted overwhelmingly to advance the judicial reform legislation in a preliminary vote. The next day, at least 10 Palestinians died and 100 were wounded during an Israeli raid in the West Bank to arrest a suspected militant, bringing The Associated Press’ tally of Palestinians killed by Israeli security forces since the start of 2023 to nearly 60.

CORRECTION: An earlier version of this story stated that all the Palestinians killed in last Wednesday’s raid were civilians. Most were suspected militants.