Startup Nation In The Age Of Coronavirus. Is The Run Over?
Israeli tech has had an amazing run over the past 10 years. According to IVC Research Center, $39.1 billion was raised by Israeli tech companies in the past decade, with $8.3 billion raised in 522 deals in 2019 alone. VC-backed deals are at an all time high with over 30 Israeli companies in TechCrunch’s Unicorn Club.
While always known for developing game-changing technologies, Israeli startups are now swinging for the fences, as many are generating tens of millions in revenue and looking at IPOs as their ultimate goal, not just having a quick exit like in years past. Fueling this trend is the growing Israeli VC industry which is flushed with cash, as outside capital pours into the tech scene from the US, Europe and Asia. In addition, over 350 multinationals have a research and development base in Israel in search of top engineers and tech talent. Startup Nation is now Scale-Up Nation on every possible level.
Yet, the first quarter of 2020 is the start of a new chapter for Israeli tech. The outbreak of the novel coronavirus and the plunge the stock markets have taken across the world are creating a new reality for Israeli entrepreneurs and investors alike. Many of Israel’s top industries are already being hit hard, with Israeli tourism in complete free dive, as airports, hotels and restaurants are empty, or shut down, as a result of the Israeli government trying to limit the spread of the virus. If prior to this pandemic it was all about exponential growth, now it’s about pure survival for early stage startups.
Some in the VC world I’ve spoken with compare this crisis to post 9/11, also known as “nuclear winter” for startups, with many startups unable to raise capital and shutting down completely. Others claim that while this is an unprecedented time, venture capital is open for business with record amounts of dry powder.
So how is this new reality really impacting Israeli startups? Will funding options dry up? Are we in a hiring freeze? And are there startups that actually benefit from the current crisis? I spoke with some of Israel’s top entrepreneurs and investors to get their take on the best way to move forward as they navigate company-building in this new, uncharted business environment.
Uncertainty Is The New Reality
Founded in 2000, Viola Ventures is one of Israel’s leading technology-focused investment groups with over $3 billion in assets under management. Recently, the fund surveyed 135 CFOs and HR leads at top Israeli startups in an attempt to get a grip of the way they are responding to the crisis, and the impact it might have on the Israeli ecosystem as a whole. The results shed light on the impact it’s already having on companies.
First, layoffs are expected as 5% of tech companies already have an existing layoff policy, while 33% are currently working on their layoff plan, according to the survey. In addition, 53% of the executives surveyed see initial signs of slowdown in demand generation and More Here close. Lastly, a fifth of Israeli tech companies expect to miss their annual budget targets for 2020 due to COVID-19, and this number will be on the rise as business travel is completely shut down, conferences are cancelled and video conferencing is becoming the new way of doing business, something that will take some time to adjust to.
Ronen Nir is a General Partner at Viola Ventures, and he believes that we are entering a period of extreme uncertainty. “Most VCs have taken a few days to wait and see how things will develop and are focusing on making the necessary adjustments with their portfolio companies. There is a special concern regarding the situation in the U.S., which seems to have reacted much slower than other countries – this is the big question facing the global tech economy now – will the U.S. be able to react more aggressively and succeed in preventing a long economic crisis?”
High Growth Startups Are Focused On Being Proactive
Business analytics company Sisense is a new member of the unicorn club, as they raised a $100 million growth round in early 2020 to accelerate growth and position the company for an IPO at some point in the future. Sisense CEO, Amir Orad’s strategy is to be proactive in light of the crisis, rather than focus on just surviving: “I’m proud of our proactive steps here. We set up a corona business continuity task force in January so we were quite ready when things escalated.”
For Orad, the customer is at the center of Sisense even more at times like this: “Analytics has an important role to play on the world stage, particularly in times of great volatility. Whether it’s for planning, decision-making or helping to navigate logistics, supply chains, or e-commerce. Our customers, as well as new companies, need our help more than ever right now. We have task forces deployed to reach out to our most impacted customers to offer support and expert guidance at no cost.”
The focus on the customer means that in many ways, it’s business as usual at Sisense: “We continue selling, marketing, investing in R&D, innovating, and even yes, hiring. While we have slowed down the hiring pace, our growth round in January was to shield us from elections or macroeconomic forces, and it is doing that and allowing us to invest in strategic initiatives.”
Remote Work, Telehealth, Learning Are Here To Stay
While the coronavirus crisis has a dramatic effect on most startups, it is also an opportunity for others to shine. With employees, customers and consumers in need of tools to increase productivity, manage health and ensure continued learning, some Israeli startups are seeing a spike in customer adoption. As Zoom is becoming the go-to video conferencing platform for business, there is a clear opportunity for other companies to become market leaders in other areas.
One of these startups that is seeing a spike in adoption is TalkSpace, a platform that enables patients and therapists to communicate via text, audio, or video messaging at any time, from anywhere. The company’s co-founder and CEO, Roni Frank, states that “the company is seeing a noticeable shift in demand, both with new and returning users with volume up 25% over the past month. In this time of collective uncertainty, anxiety, and fear, Talkspace is increasing access to its therapists and resources for both existing users and non-users alike.”
TalkSpace has raised over $100 million in funding since its launch in 2012 and is seeing a growth in demand from people seeking therapy in the light of the global pandemic. From anxiety over financial insecurity, couples navigating relationships while in quarantine, and parents concerned and stressed about childcare challenges, the company is positioning itself as a top mobile-first platform for on-demand therapy.
Business operations and overall communication and engagement is one of the biggest challenges for any company during this time. Early stage Israeli startup Connecteam is an all-in-one employee app that helps companies communicate, operate and train their non-desk employees. The company’s co-founder and CEO, Amir Nehemia, is seeing a big impact on how companies operate since the outbreak of the coronavirus.
“COVID-19 is affecting all businesses without exception. We see small and big companies doing their best to respond quickly and to adapt to change, and it is not an easy thing to do. We hear a lot about workforce management becoming a real challenge – companies are required to work remotely, keep their team informed and make sure communication goes through to every single employee. But currently they are not equipped to do so”.
Over the past month, Connecteam has seen a huge spike in companies using its solution as remote work is becoming more the rule than the exception. “We give organizations the ability to reach 100% of their employees in real time, share real time updates, provide relevant resources and more, all on their mobile device with their own employee app.” Nehemia mentions that the past few weeks are becoming a turning point in the life of the company. “Understanding the urgency, I have designated a dedicated team to support our new and existing customers to rollout the solution end-to-end in under a week. We had to meet the need we saw for our solution and it’s only becoming more and more relevant as remote work is becoming the new normal”.
It’s Time To Reassess Your Plan
And yet, while TalkSpace and Connecteam represent startups who are benefiting from the crisis as adoption for their solutions is on the rise, most Israeli startups are going to reassess their plans and targets for the next 12-18 months.
Sisense’s Orad is a serial entrepreneur and an occasional investor and advisor for young startups representing the next generation of Israeli tech. Given his experience going through downturns in the past, he has advice for fellow founders: “For earlier-stage companies, now is the time to tighten the purse strings and plan for 18 months of cash. Focus on immediate value to clients – cost saving, increased agility, easy deployments, phone selling, etc. It’s a new world and you will have other companies a few steps ahead from whom to learn.”