But in late January, Papaya CEO moved the company’s funds out of Israel, citing the country’s risky business climate amid political turmoil. She joins a growing group of tech leaders alarmed about Prime Minister ‘s plans to give parliament veto powers over the Supreme Court.

Such reforms have not only triggered widespread protests , but also raise questions about the future of the country’s technology industry. The Israeli government is moving to allow the Knesset, its parliament, to appoint justices, override Supreme Court decisions, and remove the high court’s power to judge government legislation. 

“There is so much at stake here, if this reform passes,” said , a founding partner at , a seed investor based in Silicon Valley that invests in Israeli founders. This will impact “investments coming into the country, founders staying or not staying in the country.” 

Since the first vote on such reforms passed in January, the response has been swift from both tech investors and startups. Dozens of public and private tech companies they are taking funds out of the country. Guez, however, estimates that many more have done so quietly, amounting to what could be $7 billion to $10 billion in funds moved out of the country.

“It’s a new thing for the tech community to step outside the comfort zone of not being political and jumping into it and showing their force,” said Galili. 

Since the first vote was passed in January, Galili said, this issue has dominated her calls with startup founders. 

These judicial reforms were not discussed in advance of Netanyahu’s recent election in November 2022. “You can argue whether or not the majority chose these reforms,” said Guez. “It wasn’t even discussed. It’s a surprise for us, and it seems like the majority are saying, this is not what we are after.” 

‘Significant concerns’

U.S.-based , an active investor in Israel for three decades, has had a local office there since 2007 and estimates it has in Israeli startups including , , and in the past 10 years. But in February the firm advised its portfolio of startups in a private memo to hold only .

“We are confident in the resilience of Israeli high-tech given its limited exposure to the local economy, but have significant concerns that the current climate may result in a chilling effect on non-tech foreign investment and domestic consumption in Israel that goes beyond the challenging macro environment,” the firm obtained by Israeli newspaper last month. “Our primary business concern is the continued weakening of the shekel and the smaller risk of foreign currency controls as the outflow of funds from Israeli banks continues to gather steam. While both concerns may feel exaggerated at this moment, investor and public perception can abruptly make both risks a reality.”

Moving funds

Last week, , an Israeli unicorn, announced $300 million in funding at a $10 billion valuation, but said the new funding will not be moved to Israel amid the ongoing political conflicts.

Guez, too, acted quickly after that first vote, moving Papaya Global’s funds out of Israel to Europe and the U.S. As a CEO it’s always necessary to assess business risks. But Guez went further and was public in her criticism, seeing it as her responsibility to be vocal.

The Israeli government is starting to “demolish everything that we’ve built around here,” she said. It’s almost impossible to raise a round in Israel currently, she said, because the risk level is so high. The funding environment is “completely frozen,” she said. 

In a country with internal conflicts, the Supreme Court is one of the most important institutions, she said. “Eliminating the Supreme Court — this is the end of democracy.”

Nascent industry

Crunchbase data shows startups headquartered in Israel raised close to $8.9 billion in 2022 — down from $9.8 billion in 2021, a 10% decline year over year. That contrasts with overall global funding, which fell 35% year over year in 2022. 

The billions invested in Israeli startups is a testament to its lead in cybersecurity, health, energy, agriculture and foodtech. 

In the first two months of 2023, Israel-based startups have raised more than $500 million, down 72% from funding raised in January through February 2022. 

However, the amount invested in Israeli startups is much higher if you take into account that many Israeli companies have dual headquarters or are headquartered outside of Israel.

The growth in large Israeli technology companies is a fairly recent phenomenon. Five to six years ago, when Guez started fundraising for Papaya, the overriding notion was that you could not build big companies in Israel, and that founders would have good ideas and then sell. 

In the past five years, more than $50 billion was invested in Israeli tech companies, Crunchbase data shows. And more than 30 or 40 companies went public, Guez said.

The significance of the technology industry for the Israeli economy was highlighted in a from the . High-tech exports represented over 50% of exports for the first time in 2021 — with the majority of that in high-tech services. More than 10% of Israelis work for technology companies. 

Global outlook

The Israeli technology community is international in its outlook. 

“Israel doesn’t have a local market. Israeli founders have to be global from day one,” according to Galili, who works with Israeli startups on their strategy to go to market in the U.S. Israeli startups will build their R&D in Israel but also incorporate and set up banking in the U.S. and other parts of the globe.

Israeli startups are also dependent on global investors, many of whom have set up local investment arms in Israel due to the strength of the technology industry. Galili predicts that as much as 85% of dollars invested in Israeli startups come from outside of Israel.  

What is the impact?

Founders are looking at what their alternatives are. Technology industry startups have options to relocate to almost anywhere in the world. “Everyone is discussing this,” Guez said.

For now, Galili says the talent in Israel remains a draw to keep startups in the country despite the turmoil. “Most of the impact is the uncertainty we have right now,” said Galili. 

Going forward, Israeli startups who in the past incorporated their company in Israel might decide to do so in Delaware or elsewhere to protect their intellectual capital in a country where the judicial system is not compromised. 

The current political tensions might be misunderstood as being about the political right versus the political left, Guez said, but “it’s really about the right to live in a democracy.”

Protests against Netanyahu’s plans . “As time goes by you see more and more people from the right are joining and saying, ‘This does not reflect our opinion. This is not what we voted for,’ ” Guez said.

“The general environment is that we understand that we need to unite and to fight for things that matter in this country,” she said.

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Since its inception in 1995, Insight Partners says it has put more than $700 million into Israeli companies. It currently has 15 active investments in the country. Portfolio companies include app developer , application security solution , management software startup (which we covered here), and digital adoption platform .

One of its success stories in the region lies in , which has developed a popular cloud-based web development platform. Insight Partners co-led its $40 million in 2011 and says it “supported” the company “through to IPO.”

Insight Partners Senior Associate has relocated to Tel Aviv from New York with his family to head up the office.

I was curious if the opening was an intentional move by the firm to expand outside the United States. But , a managing director of Insight Partners, told me that the decision stemmed from the growing tech hub’s appeal.

“We didn’t really approach this from the perspective of wanting to open an office somewhere,” Wardi said, calling the decision a “big deal.” “It was driven by the fact that we’ve been investing in Israel for quite a while. There’s been a rapid ramp up in pace in the last few years, and we’re seeing tremendous opportunity in the market.”

By being on the ground there, it’s Insight’s goal to be better able to support its portfolio companies, and also get exposed to other opportunities “at an earlier stage” than it would have been able to otherwise, according to Wardi.

With over $20 billion under management, Insight Partners is focused primarily on software investments, mainly B2B software in its different forms. Through its Onsite operation group, it aims to support its portfolio companies with sales and marketing, customer success and talent recruitment efforts.

Insight intends to not compete with local VCs but instead plans to “double down” on working with earlier-stage funds in the region, Wardi said.

I was also curious if having a presence in the region meant that Insight would be looking to invest in the Middle East as a whole. Wardi said the office would “strictly” be focused on Israel.

In September 2018, our own Joanna Glasner took a look at the country’s startup scene. In August, Natasha Mascarenhas covered how �ɲ�����raising a $75 million fund to invest in Israel-based startups.

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, in vacation mode, , so I’ll keep this one short, sassy, and sweet.

Want this email every weekend? Subscribe here to Crunchbase News emails!

This week ���󾱲����������ٱ����amazing immigrant founders, covered treadmills, and pulse checked upcoming IPOs, so let’s get right into it.

Starting with the big one, Peloton, an exercise equipment company which sells “happiness,” filed its S-1. Here’s a deep dive on the big numbers, and then skim this for talking points so you sound smart at your next networking event.

After that, keep reading along with our piece on how early-stage international transportation startups aren’t intimidated by Uber. And in an odd turn of events, a 7-year-old startup bought Lord & Taylor, a 193-year-old department store chain.

Moving to some nine-figure funding rounds, Enjoy raised $150 million�����Ի���ThoughtSpot got to unicorn status with its $248 million Series E. Smaller rounds include The Long Term Stock Exchange raising $50 million�����Ի���Ethos raising $60 million, completing its third raise in 14 months. More, as always, in Last Week In Venture.

We switched sides of the table with a few new international funds this week: to invest in homegrown startups, Latin America’s Kaszek Ventures closed two funds totaling $600 million, and Israel’s F2 Capital raised $75 million for its second fund.

Finally, jokes aside, for those of you that do have Monday off: I dare you to not be online all day. As I unpack in my second edition of the Loneliness In Tech series, using social media, at a certain point, makes us more lonely, not more connected.

We all stare at screens enough already, so take advantage of a couple face-to-face moments with friends and family instead.

Until next week,

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P.S. Follow our newest reporter, Sophia Kunthara (@SophiaKunthara)�����Ի���Crunchbase News on Twitter�����Ի���Facebook for daily updates.

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Lightricks makes a number of photo and video-editing applications for iOS and Android. It’s probably best known for Facetune2, a photo retouching and editing app popular with the selfie-taking crowd. According to app data provider Apptopia, Facetune2 is downloaded approximately 3.1 million times per month from the iOS App Store.

Lightricks also makes a suite of mobile photo, video, and motion graphics-editing and composition applications aimed at creative and marketing professionals. “Lightricks’ seven apps have over 180 million downloads worldwide and nearly three million paying subscribers,” the company said.

Lightricks was among the first companies to implement subscription pricing for its mobile applications. Since the launch of the iOS App Store and Google Play Stores, mobile developers primarily relied on one-time purchases. When Lightricks launched the first version of Facetune in March 2013, it cost $3.99, once. By the time , the company was generating $10 million in annual recurring revenue between one-time sales of Facetune, its Enlight suite, and its other apps.

Shifting to a subscription model has been good for Lightricks. “Since moving to a subscription-based model three years ago, Lightricks’ revenues have tripled year after year,” the company said in .

All of Lightricks’ paid apps are available on a subscription basis. For those who wish to purchase a perpetual license to the software, the company offers that as an option as well. Its most popular app, Facetune2, is currently priced at $5.99 for one month, $2.99 per month for a six-month license ($35.99 total), or for a one-time purchase of $69.99.

Lightricks said it will use the new capital to scale up its operations. The company currently employs 250 people in Israel and the United Kingdom, but has plans to “significantly grow its current team.” Lightricks will open a third office in Germany.

“We’re excited to reach this milestone, but we’re just getting started on our mission to create fun and powerful tools that reimagine the way content is created all over the world,” said Lightricks’ co-founder and CEO .

With its fresh ten-figure valuation, Lightricks joins the ranks of other Israel-based unicorns, including , , , , , and, most recently, Monday.com. According to Crunchbase data, Israeli companies have raised over $2 billion in combined seed, early-stage, late-stage, and private equity backing so far in 2019. Lightricks’ $135 million haul is the largest Series C round closed by an Israel-headquartered company, according to Crunchbase data.

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This year, the country’s largest acquisition actually involves a fizzy drink maker. Israel-based SodaStream, the leading seller of home beverage carbonation systems, announced two weeks ago that it is selling to PepsiCo for a whopping $3.2 billion.

For a country famed for launching leading companies in security, computer vision, pharma, and other “deep tech” sub-sectors, a bubbly water pioneer might not be the likeliest suspect to land the year’s biggest M&A deal. One would expect something more like 2017’s front-runner, computer vision heavyweight , acquired by Intel for $15.3 billion.

But Israel’s track record for building, IPOing, and selling businesses is nothing if not eclectic. From heart implants to 3D imaging to cloud storage, Israeli startups continue to attract significant funding rounds and buzzworthy exits.

This year, the Israeli startup and growth financing scene is still chugging along. Below, we take a look at the numbers and trendlines, based on Crunchbase data.

Funding Rises

Overall, Israel ranks as a significant global technology hub. However, it’s startup ecosystem is a fraction of Silicon Valley’s total haul, and smaller than other venture hubs like New York, Boston and, of course, Beijing.

Still, there’s been plenty of growth in recent years. Funding for Israel-based startups has approximately tripled between 2012 and 2017, with rounds ticking up more modestly.

In the chart below, we look at annual funding totals and round counts beginning in 2012.

Supergiant funding rounds ($100 million or more) remain rare among Israeli startups. That said, there are quite a few in the tens of millions, and large funding recipients are a varied lot, spanning sectors including enterprise software, security, computing vision, e-commerce, and life sciences.

So far this year, the biggest venture funding recipient comes from the device space: , a developer of implants for patients with chronic heart failure that raised $70 million in a Series C round. Second is , a developer of 3D video and image capturing technology that raised $55 million in a Series D round that counted Samsung’s corporate venture arm among its lead investors. A third deal—$300 million for publishing tech firm —is larger than those two, but hard to classify as a classic venture deal.

Billion Dollar Club

Tech founders in small countries like Israel are known for focusing on global markets from the get-go. That international orientation has enabled Israel, a nation of , to serve as home to a good-sized stable of unicorns relative to its size.

Several companies have secured funding in recent years at valuations above $1 billion. The list includes data storage provider , media analytics platform , and , a startup launched by Mobileye founders that develops AI-enabled devices for the visually impaired.

Boosters of the Israeli founder scene note that the list would be a lot longer and more heavily funded if it included . Then, we could tack on such high-valuation names as WeWork, Houzz, and Palo Alto Networks, to name a few.

Even so, the list of founders who’ve kept local headquarters is impressive on its own, and generated some big exits to boot.

Bubbly Exits

There are plenty of more recently founded big exit generators. In addition to Mobileye, larger M&A deals of the past couple years include drugmaker Neuroderm ($1.1B deal), game developer Plarium ($500M) and software firm Argus Cyber Security ($430M). We put together a list of some of the bigger deals .

Israeli startups are also going public at a decent clip. We put together a seperate of 11 companies that have launched IPOs since last year, ranging from micro-offerings on local exchanges to more substantial overseas market debuts.

More Bubbliness Ahead?

When will SoftBank and the other super-sized venture round investors start piling into Israel? Who knows, and perhaps the current cycle will fizzle before that happens.

Either way, Israeli startups have demonstrated they can scale pretty well with the capital resources at hand.

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