How Israeli tech survived the war
“I know that for some of you, coming to Israel after a very challenging summer might cause hesitation,” Tel Aviv Mayor Ron Huldai told a crowd of hundreds of techies wearing neon-pink wristbands and ID necklaces. They sat in an old, restored British train station along the coast of Tel Aviv on Sept. 16, having flown in for the DLD (Digital-Life-Design) Tel Aviv Digital Conference — a two-day event in its fourth year, modeled after a similar one in Germany. It has since become the largest of its kind in Israel.
“So I’m happy that you did not hesitate, and I’m happy you have come,” the mayor said. “I see it as a sign of confidence and friendship. Thank you all.”
The DLD event, one of three tech-related conferences going on in Israel simultaneously, began a tight three weeks after the final blow of Operation Protective Edge, a bloody 50-day war between Israel and Gaza. Homemade rockets launched into Israel by the military wing of Hamas, Gaza’s government, set off daily air-raid sirens in Tel Aviv. One night, a piece of rocket landed on a major Tel Aviv highway, narrowly missing traffic. Gaza health officials estimate that Israel killed more than 2,100 Palestinians, mostly civilians, during the war; 66 Israeli soldiers and six Israeli civilians died in the fighting.
[More: ” target=”_blank”>took a gut punch from Operation Protective Edge. Hotels and tour companies, which had been on track to have their best year ever, reported dips in business during the war as low as 30 percent to 50 percent. Combine that with the plunge in domestic spending and slowdown in local manufacturing, and analysts are putting Israel’s lost gross domestic product (GDP) between $1 billion and $2 billion.
But its high-tech industry apparently emerged unscathed — preserved by what has become known as the Tel Aviv bubble.
Experts say it’s too early to tell whether the war left any real bruises on Israeli high-tech. The second financial quarter of 2014, which ended right as the war began, saw Israeli tech companies raise record capital — a total of $930 million. Results for the third quarter, encompassing the war, won’t be out until October.
However, judging by two massive initial public offerings (IPOs) that dropped during the operation, Israeli tech was operating on its own economic plane.
Just a couple of weeks into the war, Mobileye, an Israeli company whose car security systems help drivers avoid collisions, went public in what was the largest U.S. IPO of an Israeli company in history — raising an initial $890 million. And two weeks after that, ReWalk, which creates exoskeletons for paraplegics, became the best-performing IPO of the year when initial investors made as much as a 230 percent profit in the company’s first few days on the stock market.
At least five other major Israeli companies reportedly went public within the same time frame. The Tel Aviv Stock Exchange continued to rise during the conflict, and had hit an all-time high by mid-September.
“I don’t see the impact” of the war, said Jonathan Medved, CEO of OurCrowd, an American-Israeli crowd-funding venture that discovered ReWalk early on. “The last month, I’ve been traveling all around the U.S. and Canada, and I haven’t seen the impact at all. People ask how you’re doing, and then they start writing checks.”
Medved noted: “These tech investors are investing in a risky business in the first place. You learn to work with risk and accept risk — and with Israel, geopolitical risk is just another part of the equation.”
A young Israel Defense Forces soldier checks out the SkyStar surveillance drone at the Unmanned Vehicles Israel Defense conference.
Yaacov Lifshitz, former director general of the Israel Ministry of Finance, argued that “high-tech is not so much connected to specific geographic area. It’s more about ideas, software — things that are not so tied to the ground.”
A few Israeli startups at DLD said that because a few of their staffers had to report to the Gaza border for reserve Israeli military duty, the quality of their services suffered some — but not enough to affect profits in the long run.
“I suffer more from Google than from Hamas,” said the founder of an online advertising startup, who attended DLD but wished to remain nameless, referring to a recent algorithm change in the search engine that caused some of his clients to “suddenly disappear from Google.”
The ad entrepreneur said the war’s domestic blows didn’t affect him because most of his clients are abroad. “Even my Israeli clients have clients abroad,” he said.
Israeli social-media marketing company Wivo experienced a curious twist: Although profit from three of their largest Israeli clients dipped, a fourth — a T-shirt company with pro-Israel slogans — tripled its exports, more than making up for their loss.
Wivo executives also learned which ad language caused potential customers to emote the most in wartime. “You should always put ‘Hamas’ in the same ‘support Israel’ sentence,” said Johnny Brin, the company’s vice president of marketing, while making rounds at a DLD night mixer.
During the week of events surrounding the two-day DLD conference, techies schmoozed and partied across the city, clustering along central Rothschild Boulevard. Colored orbs hung from Rothschild’s trees and startup booths lined its sidewalks; any open spots were packed with hoola-hoopers and street musicians.
“When we’ve traveled, we’ve found that Israel high-tech is very well-respected — especially Tel Aviv,” said Gil Margulis, CEO and co-founder of QuikBreak, a startup that specializes in targeted mobile advertising. “There’s the two ideas: Israel is like conflict zone, but Tel Aviv is like beach, tech, fun, innovation. It kind of has a different position in your mind.”
But the war — which because of Palestinian civilian casualties drew unprecedented global criticism of Israel — was an inevitable topic of conversation at a DLD mixer in the backyard of a nameless bar along Rothschild, its awnings draped in vines and twinkling lights. A 21-year-old British tech prodigy who co-founded three startups said he had been trying to ignore friends on Facebook arguing Israel versus Palestine, a conflict he barely understood. “I just told them to chill,” he said.
Over drinks, an editor at a U.K. tech magazine was surprised to learn that the scientist featured in his magazine for inventing a twerking robot was furious at a different U.K. newspaper editor for his pro-Palestinian coverage of the war. Later on, the same scientist was surprised to learn from another journalist that most Gazans have no way to leave Gaza.
Two startup teams from Gaza, in fact, were denied entry to the conference, according to Abdul Malik Al Jaber, a DLD speaker and leading Palestinian businessman who runs startup accelerators across the Arab world.
“The timing is difficult. But the fact that someone like me is coming here shows the interest is there,” Al Jaber said, adding that “economic partnerships between Israelis and Palestinians is the only way to move forward” in the conflict.
Former Israeli President Shimon Peres, fourth to the podium at the DLD conference, was similarly optimistic. “I think the gate to peace is the new age of science and technology,” he said.
Peres warned, however, “In every technology, there has to be a moral point. Without fair human judgment, it can cut heads.”
Peres’ reference to war was one of just a handful throughout two days of conference speakers celebrating Tel Aviv as the world’s most vibrant startup scene after California’s Silicon Valley.
But half an hour east, near Ben Gurion International Airport — where there was no sea breeze to cut the heat — another conference in a Vegas-style hotel convention center used Operation Protective Edge as a key selling point. At that event, called the Unmanned Vehicles Israel Defense (UVID) conference, the steelier end of Israeli high-tech — weapons and security companies — was showing off technologies recently tested in Gaza.
Specifically, they unveiled the unmanned spy and attack drones used to assist soldiers on the battlefield and bomb enemy targets. Companies also put large focus on repurposing technology used in Operation Protective Edge for other countries’ wars, and for civilian uses abroad.
“We’re here to tell you the future is here,” Ran Krauss, creator of three mini surveillance drones currently used in Israel, said at the conference. “We’ve been doing it for quite some time here in Israel, legally and in a very superior way.”
Former Ministry of Finance Director General Lifshitz, also a past chief economist for the Israeli Ministry of Defense, estimated that of all the country’s high-tech exports — which make up about one-third of total Israeli exports — one-third of those are weapons- and security-related.
And “if you are trying to sell a system,” he said, “you will always get the question of if the IDF is using it.… It contributes to the selling power.”
At the UVID conference, expo poster boards were stamped with phrases like “battle tested” and “combat proven.” Israeli weapons giant Elbit Systems showed off images of their Hermes 900 unmanned aircrafts carrying munitions to drop on Gaza, while the smaller startup Roboteam unveiled the “unstoppable” underground bot they created in just four days to help IDF soldiers navigate Hamas tunnels in the heat of war.
“The Americans have not yet internalized the project of tunnels,” Col. Itzik Elimelech, president of Israel Military Industries in the U.S., said at the conference. “I think we’re pioneers here,” he said, imagining a day when robots could also be used to patrol U.S. border areas.
RT Aerostat Systems, the company whose white Skystar 300 surveillance balloons have become as recognizable along Israeli-Palestinian border areas as concrete separation walls, said business boomed throughout the war. “The IDF doubled our balloons along the Gaza border,” said Taly Shmueli, the company’s vice president.
Shmueli said RT is currently in the final stages of locking down a contract with the U.S. government for providing surveillance drones along the Texas border with Mexico. She hoped Operation Protective Edge would be the final stamp of approval RT needed to close the deal.
“Really, we are the only tactical mobile system in the world that has proven the system in more than 500,000 flight hours in battle areas,” Shmueli said. “We think it’s a good solution for the Mexican border. The large systems can identify a person from up to 15 kilometers away.”
Yet another Israeli tech conference last week — the International Cybersecurity Conference at Tel Aviv University — focused on Israel’s growing advantage in the cyber-security industry. “Here in Israel, during the fighting in Operation Protective Edge, there were 2 million cyber attacks daily, which had very little success,” the conference chairman told the Israeli newspaper Haaretz.
In dozens of conversations at both the DLD and UVID conferences, most participants brushed off as a nonissue the international Boycott, Divestment and Sanctions (BDS) movement against Israeli products on behalf of Palestinians.
“What’s BDS?” asked an entrepreneur from England at DLD.
BDS “doesn’t permeate high tech,” said Margulis of QuikBreak. “I think the tech people aren’t really into that. They go, ‘Look, Israeli technology is awesome — you’re cutting-edge, you’re the best.’ They could boycott Israeli stuff, but they’re going to lose out, because it’s the best.”
If Israel resumes its war in Gaza at high intensity, Medved of the OurCrowd startup-funding platform said “there’s always the risk of a boycott. But the boycott is limited to groceries or tomatoes or Dead Sea creams. No one has had the courage to boycott Google, Microsoft, Intel.”