Is Israel tech’s doom-and-gloom crowd wrong?

Has the moral panic about judicial reform clouded an otherwise fertile time to invest in new companies in a country as loaded with technical and creative talent as Israel? It seems like a callous question to entertain right now. 

That’s the thing about widespread fear. Dissenting opinions are engulfed by groupthink, which by definition eliminates nuance. Think about it. A mob doesn’t voice one hundred opinions. It shouts one, and enforces it by coercion. 

Michael Fertik, founder of Heroic VC, is among the few who believe now is a great time to be cutting checks to early-stage Israeli startups. Here’s what he told me on my podcast:

There’s such apoplexy about the current political moment which offends so many people who are smart and educated, and who think of themselves to be in control or losing control of the country. It offends their sensibilities, the way Trump offended some people’s sensibilities in America. Their sensibilities are so offended that everything that’s wrong or everything that’s under threat, including a global depression in venture capital investment, is suddenly ascribable to this set of people you find offensive. 

You’re allowed to find them offensive. You’re not suddenly allowed to lose your mind in a totally irrational, non-Jewish way, and throw out all of the things that have made you great, and say that our startup future is going away.

Is investing in a country even a strategy? It sounds strange. An investor bets on a team of people to execute one central idea that solves a market inefficiency, ideally for a profit.

Israel is nevertheless an attractive market to look for investment for two main reasons. Its society produces an inordinate amount of talented entrepreneurs and technologists who band together in creative enterprise. The second is that the country has a robust legal system that ensures fair play in the real world. 

As far as I can tell, neither of those factors is in any serious jeopardy (with one caveat). 

Let’s first dispense with the brain drain concern. 

The last time Israel faced a truly horrific threat was in the Second Intifada. People left their homes every day not knowing if a bus would explode in their vicinity, if their children would be blown to bits at a restaurant or nightclub. The cause for all this anxiety and misery, at least partially, was their daily existence as Israelis. 

One couldn’t come up with a better impetus for mass flight out of Israel, especially for those who have the resources to resettle in any developed country. Here’s what happened in those blood-soaked years:

As you would expect, more people left at the height of the Second Intifada. They fled because they saw despair in Israel’s future.

This is where the current conversation should be. Is there hope? After all that Israel has been through, all the sacrifice, all the wars, the failed attempts at peace – will this be the time to give up?

You’ll notice that those who left at the turn of the century were a small minority. That’s because Israel is a nation of fighters. Israelis understand that you have to fight in order to achieve progress. Or, to put it in starker terms, they don’t have a choice but to commit to battle. Where else will the Jews go?

There is always hope if you have that mindset. 

By the way, this is precisely what characterizes the best entrepreneurs. Creating a business out of thin air – bending reality in their favor to fix a societal problem – requires the will and determination to fight themselves and the world every day in the name of progress. 

Sounds like Israel is a hell of a place to look for investable startups.

You might be thinking: Yeah, the second intifada was brutal. But this time the blows are coming from inside the house! So what? The question remains whether people feel like they have a future of prosperity and dignity.

If net migration is any indication, the answer is almost always “yes.”

Now to the claim that Israel’s legal system is about to collapse into the hands of the emerging, corrupt, religious-ethno tyrants. 

I find this odd. There is broad agreement that the judicial system needs fixing, and that some of the reforms are helpful in achieving that end. 

This means that the investors who’ve been spooked are discounting the possibility that the intent of the reforms is genuine. That Israel’s legal system will improve after most of the reforms are passed.

I say “most” because I was convinced by Moshe Koppel, one of the driving minds behind the proposals, that the override clause is a “dumb” idea that ought to be scrapped. Allowing the government to overrule the high court with a simple majority would effectively, and dangerously, denude the judiciary of its power. 

The argument in Israel is not over. This is a nation of fighters. Fate has walloped the Israelis on the chin many times before. Yet they keep getting up and throwing more punches.