If I had to pick two words to describe the Israeli reaction to the horror of October 7th and the events that have unfolded after that, I wouldn’t even have to think. “Resilient” and “determined” are so clearly the ones I would reach for. If the list was longer it would include “resourceful,” “united,” “loving,” and “passionate.” “Trauma” is in there, yes, but it wouldn’t even make my top 10 because so many people proactively work to combat it in themselves and for others. Israelis are active, effective, and despite everything, determined to hold onto hope.
The same is true within the Israeli hi-tech ecosystem, in which I’ve been lucky to work for many years now. What’s interesting is that, if you place what’s happening now in the context of previous conflicts, it fits into a clear trend. In terms of economic resilience, that’s a powerful sign.
Israeli Hi-Tech: Adapting, Evolving, Achieving
Through my work at Maverick Ventures Israel, I have visibility into a wide range of startups, of diverse stages and across a range of industries. I’m also privileged to have a huge number of personal friendships with entrepreneurs and other people who are deeply embedded in the hi-tech ecosystem in different ways. This combination means I have a bird’s eye view of hi-tech in the current situation, and at Maverick we’ve been struck by how consistent things are across companies, even those with very different priorities, products and cultures.
First, of course, companies are acting as a part of our wider society and trying to enable employees to meet its needs. Many are giving employees the flexibility they require to be able to fit volunteering into their week, actively supporting the families in their company who have members on reserve duty, and working out how they can use their own company resources to help volunteering efforts.
As well as that, though, there is a strong current across the ecosystem of determination to demonstrate that Israeli companies carry on no matter what. New product releases or new versions that had been announced before the war, are continuing and being released as planned with no impact on quality. Production environments remain stable, with any maintenance being carried out as required. Strategic meetings go ahead. Customer commitments are being met.
Naturally there are things that have had to be deprioritized for the time being, but even there steps are being taken to minimize the impact and to plan for the most effective way to catch up. Some of these innovations will likely become incorporated into normal business going forward, making the businesses as a whole more efficient. Adaptation, evolution and achievement against all the odds are the order of the day.
What I find most interesting is that this is nothing new in Israel.
Previous Conflicts Show Economic Resilience
It has naturally been of great importance to us at Maverick to consider the impact of the situation on the Israeli economy and startup ecosystem, both now and in terms of its impact afterwards. In normal times we regularly hear at Maverick from investors who mention in passing their awareness of Israeli resilience even in adverse circumstances. So our question was, is that impression born out by the data?
It turns out that it is. If you examine the past conflicts in Israel during the century so far, and take into account the activity of the Tel Aviv Stock Exchange (TASE), investment in Israel companies, and strategic M&A activity with multinational companies, the details fill in a picture of considerable resilience.
Looking at the TASE, it appears that the impact of historical conflicts this century have been minimal. During the time of actual conflict, the TASE generally reflects single digit or negligible related impact. Moreover, and in many ways more tellingly, it shows an almost immediate rebound with strong performance in both the short and long term after the conflict has concluded. This matches all of our experiences in terms of investments in Israeli startups as well; conflict does not impact strong interest in Israel’s exceptional ecosystem.
M&A activity shows an even more resilient picture. Not only did activity remain strong after the resolution of conflicts in this century, but even during the unfolding crises, international companies continued to complete important acquisitions of Israeli companies. Some memorable examples include the Second Lebanon War, during which both SanDisk’s $1.5 billion acquisition of msystems and Hewlett-Packard’s $4.6 billion acquisition of Mercury Interactive were completed, and the 2014 Gaza war commonly referred to as Protective Edge, which saw both Qualcomm’s $400 million acquisition of Wilocity and Intercontinental Exchange’s $350 million acquisition of SuperDerivatives. There are more examples but they would make this paragraph too long.
We saw the recent announcement that Palo Alto, the world’s largest cyber company in terms of market cap, is acquiring Dig Security for $315 million, very much as part of that same picture. Palo Alto already employs approximately 1,000 people in its Israeli R&D center and said that this latest acquisition, completed and announced during the current war, “reinforces our longstanding commitment to our team in Israel and to continue growing our footprint with its talented and dedicated cybersecurity professionals.”
Resilience Generates a Creative Cycle
These two pieces of the economic puzzle – the determined resilience of Israeli hi-tech companies and employees during times of struggle, and the strength of the economic picture afterwards – when seen in combination, result in a positive creative cycle.
Israeli companies that develop new workarounds, efficiencies and ideas out of sheer necessity, go on to leverage those to create more effective businesses, and more varied products, afterwards. This makes them, in turn, more attractive to international companies for investment and acquisition, and this happening at scale makes the ecosystem as a whole more appealing.
This trend, which we’ve seen in action before, will be even more on display than usual after the resolution of the current conflict. Some of the pioneering and volunteering efforts which have had to innovate so quickly in order to meet the pressing needs of the current time will undoubtedly generate companies whose purpose will be to explore and expand the ideas behind the solutions thrown together under stress.
None of this is to make light of the current situation. This period is difficult, draining and tragic in ways that affect every person here, throughout Israeli society. But it is especially when things feel darkest, that it is most important to remember the power of a spirit that strives for something better, and is determined to build even in the face of destruction.
That spirit is very visible in Israel today, and will also drive economic recovery and growth tomorrow. It is what will continue to create value, products and technology that benefit not just Israel, but the rest of the world as well.