Ezra Gardner and Varana Capital are on a mission to save Israeli tech ecosystem

In a special committee discussion, director of an American foundation investing in Israel clarified: 'What's happening here is a crash, it's slow, so no one is taking any action, but every passing day, companies are burning more money, and eventually, in 6-12 months, an entire cycle of innovation will collapse

Ezra Gardner, founder and CEO of the American-Israeli fund Varana Capital, addressed the Knesset Finance Committee's discussion on the topic of the loss of foreign investments in Israel, stating: "Foreign investors have left the table and are not answering calls. The gap this year is $10 billion, and every day that passes, companies are burning more money. Eventually, in another 6-12 months, an entire cycle of innovation will collapse."
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"We are one of the largest funds located in the United States, investing in Israel for 13 years now," Gardner further explained. "Unfortunately, the situation is much worse than you know. There is a very severe problem with foreign investments in Israel. The state needs to take two steps: operate like the U.S. did in 2008, supporting banks to lend money to startups with greater security, and also take part in the ownership of startups, as is happening through the Innovation Authority, but on a broader scale."
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דיון על תקציב 2023 בוועדת הכספים
דיון על תקציב 2023 בוועדת הכספים
The Knesset Finance Committee's
(Photo: Knesset Spokesperson)
He added: "We, as a fund, have concluded that, due to the war, two important things need to be done. The first is the influx of funds into the country: We have raised a commission-free fund, intending to stream $50 million to Israel. We are in the most Zionist junction with the best companies, yet money is not being poured into us. We will bring the money, but the situation is very gloomy out there. The regular, large banks need to give loans to the Israeli sector, and they are afraid to do so."
Gardner called on the Knesset to help companies obtain loans at a lower interest. "If the government provides a security net and enables companies to take lower interest loans, it is not much different from what you are doing with mortgage support. The government will not need to write checks right now; perhaps in two years there will be some costs. Maybe the government will benefit if it invests directly, but it will allow banks to open their wallets and provide the loans needed. This is a massive problem; there is a $10 billion hole we see this year. What's happening here is a crash, it's slow, so no one is doing anything, but every day that passes, companies are burning more money, and in the end, in another 6-12 months, an entire cycle of innovation will collapse," he warned.
"There are large companies with access to funds, and smaller ones benefit from various support programs. However, companies in the middle of the marketing or acceleration process lack any plan at the stage where they need foreign investments to join. We used to take them to the U.S., Europe and Asia, but the investors have left the table and are not answering calls. These are the companies that could generate billions of dollars in revenue, growth and jobs in the coming years," according to Gardner.
He said that even if the war ends soon, getting investments for this year is a lost cause. "If the companies are not supported, you won't have a budget for anything, and there will be a tax collection crash. What's even worse is that toward the end of last year, we saw a market awakening. It's not that there is no place to put money if not in Israel. The funds go elsewhere, and we are left outside the circle. Even if, assuming the war ends in the best possible way tomorrow and the whole world acknowledges that we acted in the best way, it will still take 3-6 months to bring in investors and another 3-6 months for them to evaluate their research. This means that this year is lost."

A more substantial investment is required

The Innovation Authority presented plans to cope with the situation, but market factors indicated that, despite the authority's rapid activity, the required scope is much more significant, both in terms of government investment and assistance in providing loans with state guarantees.
According to Sajith Suliman, the CEO of Autotek: "We employ hundreds of workers and have orders exceeding 200 million shekels this year, but we cannot produce because suppliers demand prepayment for raw materials since they don't want to provide us with credit. Banks are sitting on the fence and don't want to grant us bridging loans."
Ronit Harpaz, CEO of the medical startup Endoron Medical, stated: "I received a grant of 2.5 million euros from the European Innovation Authority. Still, to complete the clinical trial, I need $20 million in the next two years. Everyone I spoke to said: 'You alone, the state, and the high-tech sector, won't attract significant funds here in the next two years.'"
Opher Doron, CEO of EVR Motors, a company developing advanced car engines, described a similar situation. "I recently managed to raise a little less than $10 million, only from existing investors. It gives me less time than I expected. All investors say it's interesting but not now. Luckily, I'm in touch with investors who can help us advance and keep the money for themselves, but it's very difficult."
Daniel Barel, CEO of REE Automotive, said: "We are the only car company in Israel; we manufacture and sell cars in the American market. We employ hundreds of workers and have orders exceeding 200 million shekels this year, but we cannot produce them because suppliers demand prepayment for raw materials since they don't want to provide us with credit. In a regular world, we would ask for bridging loans, but banks sit on the fence and say no. ... Our orders are guaranteed, cannot be canceled, and we can make 200 million shekels this year, but the banks see it and are unwilling. The moment the government sees this and stands behind it, additional investors will come in, and it will be easy."
Natanel Haiman from the Manufacturers Association of Israel noted that "these startups' success is essential, true for the startup business environment and the entire industry. What will make foreign investors settle here? Research and development, capital investments and regulation; all three have been eroded in recent years. There is a reduction and erosion of budgets, an enormous list of surplus costs, and now also reserve duty tax, meaning people who serve 3-4 months in reserve and all pay their social costs. ... We don't have a strategy today; there used to be a body focusing on the needs of foreign investors in Israel in the Ministry of Finance, but this authority was entirely abolished."
Asaf Moses Kubo, chief economist at the Innovation Authority, clarified what it is doing to help encourage investment in Israel. "A few years ago, we emphasized that the Israeli high-tech relies on foreign investments, 80%-85% of the venture capital comes from abroad, both in Israeli funds operating money from foreign sources and in mutual funds. We are lagging in terms of foreign investments compared to what is happening in the OECD. Therefore, the tools we thought to develop in times of crisis are precisely to encourage Israeli investors to enter partially into the shoes of foreign investors during this period. We have acquired two tools: one is the fast track program, which has been operating from November to March, with an allocated budget of 400 million shekels. Simultaneously, we decided to open a program for investment in Israeli institutional investors; we will provide them with an incentive of 30 cents on every dollar, in Israeli venture capital investments."
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