Israel’s political crisis has activated its apolitical tech industry — and there’s no turning back

As unease spread amongst a handful of entrepreneurs, alarmed at radical “reforms,” proposed by the Benjamin Netanyahu-led government, to the independence of the judiciary, WhatsApp groups were fired up, and were quickly flooded with volunteers from the tech industry.

Last week, the country hit its thirteen in the number of weeks of protests, many of which were directly co-ordinated by Israeli tech entrepreneurs and investors. The latter have collectively become a key driver in the movement against the government’s proposals, alarmed as they are that Israel’s hallowed “Startup Nation” reputation was at threat if the sacred rule of law became questioned at home and abroad.

Groups like Democratech.net are now bolstering the protest movement, and laying out the tech industry’s concerns more openly. Leveraging the tech platforms that they work with (and on) every day, these groups applied the same enterprising mentality Israelis have for tackling the most difficult of problems. And the targets have been not just the judicial proposals but also the lawmakers pushing them through.

“We were tracking wherever MPs were. If I saw an MP in Tel Aviv having dinner, immediately people were being sent to protest outside that restaurant. It would be an immediate call for a protest,” Ami Dror, founder at BriBooks.com, told me over a call.

Dror Sal’ee, co-founder and VP APAC of Israeli startup Guardicore (acquired by Akamai Technologies) added that Israel’s high tech protest movement is extremely well organized. It has “a media team, logistic team, strategic team, video clip team, pretty much dozens of different teams.”

In one demonstration, the tech industry protesters put a mock locomotive in the middle of Tel Aviv, festooned with signs saying “High Tech is the locomotive of the Israeli economy and democracy is its fuel.”

Thousands rallied outside the Knesset (the Israeli parliament) last week, and the tech community was well-represented among them. As one tech executive said: “We were out till 3am, and we’re going out again today. If you need to call, I may not be available by phone.”

Her enthusiasm for rallying to the call of the protests is emblematic of how the Israeli tech scene — which for years has been reliably patriotic, but largely largely apolitical — has become one of the leading voices in the movement against the government’s proposed changes to the independence of the judiciary.

After a weekend of enormous protests, tech protestors shipped an important ‘patch’ for their latest project: a delay to the proposed legislation.

Netanyahu announced that he was “not ready to divide the nation in pieces” after mass protests over the judicial overhaul threatened to spiral the country into chaos.

For now, it seems, the government will delay the controversial measure for several weeks, especially now as a series of public and religious holidays come up.

But the delay looks like being only temporary. As one tech executive told me — describing how the controversial legislation could still go through — “the loaded gun is still on the table.”

Indeed, if the changes are ratified, critics say they would end the judiciary’s 75-year history as an institution separate from the government, and, critically, outside the control of the ruling political party of the day.

It’s clear protesters have little trust that Netanyahu and his supporters are truly finished, so they continue to press on.

It started with a threat to divest

Two months ago, Eynat Guez, co-founder and CEO of payroll startup Papaya Global (which has raised $444.5 million), publicly declared she would withdraw her company’s investment funds from Israel, just after the the first murmurs of the government’s plans to change how the judiciary operated, appeared.

At issue was not just legislation that might impact the tech industry, but the principle of a government being able to push through its own agenda virtually unfettered.

“The same week that the president of our supreme court said that this is the biggest danger to democracy that we’ve ever faced, I made my announcement a day later,” Guez told me. “I tend to take decisions based on facts… and on risk management. So I felt that this is the right thing and the most rational thing to do.”

She said the protests have galvanized people who typically compete against each other, or simply are not on the same page: “It’s the first time ever in history that the tech sector has been united, across entrepreneurs and investors.”

So incensed was he by government machinations around the judiciary, that veteran entrepreneur Yanki Margalit decided the changes were having a chilling effect on the country’s usually entrepreneurial culture. “Given the atmosphere now, it’s almost irresponsible to start a company,” he told The New York Times in February.

Other entrepreneurs have been talking about relocating or moving money out of the country’s banking system.

Assaf Rappaport, the CEO and co-founder cloud security company Wiz (currently worth $6 billion), has publicly questioned the “reforms”, saying they would call into question Israel’s ability to lay claim to being a trusted centre of cybersecurity.

Judiciary in name, but its power is not the same

To understand the turmoil afoot in Israel’s tech community right now, it’s helpful to have a short primer on the the political state of play.

Unlike most Western-style democracies, Israel’s parliament has no second legislative chamber. This has meant that the judiciary has traditionally taken on far greater importance in the country’s relatively young democracy.

Judges have used this role to make critical rulings in support such key issues as, for example, women’s rights and those of minorities, such as the LGBTQ+ community. That has also made it a target of criticism among more conservative groups, as well as any others that might take a differing view of the court’s determinations.

The government’s proposed changes were seen by critics as having the potential to curb the judiciary’s influence over lawmaking and public policy, by limiting the Supreme Court’s power to exercise judicial review.

According to the proposals, the government would also have control over judicial appointments and limit the authority of legal advisors. Government supporters say the moves would be a counterweight to alleged “leftwing bias” in judicial decisions.

Most significantly, if passed, the changes would grant the Knesset the power to override the Supreme Court, if it deemed any legislation as “unconstitutional”. That is a powerful lever, given that Israel — as in the U.K., from which Israel inherited its parliamentary system — does not have a codified, single constitution, but a set of laws and rights that operate as a kind of ‘unwritten constitution’. In other words, interpretation takes on an even greater role.

Simultaneously, the government was — until this week — progressing at pace with legislation to widen the authority of the religious, Rabbinical Courts, allowing them to act in civil matters if both parties in a case give their consent.

Netanyahu has claimed reforms are necessary because the judiciary — which is, technically speaking, unelected — has too much control over public policy. However, he is widely seen as being compromised in this opinion because of the ongoing investigation, since 2020, into alleged bribery, fraud and breach of trust by him and close political allies within his inner circle. (He denies the charges.)

The resulting protests by opposition leaders and activists accuse the government of undermining established norms of checks and balances, and handing the ruling party control of all three branches of government and virtually unchecked powers.

Those calling for the reforms to be slowed or halted to allow for a wider consultation include the President of Israel, the President of the Supreme Court, the Attorney General, and most recently the Defence Minister, who was fired by Netanyahu just over a week ago, during a weekend of turmoil.

Undermining the foundations that helped build ‘The Startup Nation’?

According to polling in February by Israel’s Channel 12, only one in four voters support the proposed changes to the judiciary.

Protests have attracted hundreds of thousands of people across Israeli cities, as well as outside the Knesset and politicians’ homes in Jerusalem, with Israeli police clashing with protesters and deploying stun grenades and water cannons to disperse demonstrators.

But even as the protests against the judicial ‘reforms’ have set the country alight, the resonance within the tech industry has been surprisingly strong. For it, a key concern has been that the very foundations of how it develops technology platforms into valuable businesses, and raise capital, could be under threat.

Dror at BriBooks likens the government’s proposals to those enacted by authoritarian governments in Hungary, Poland and Turkey.

“What Netanyahu and his government are trying to do is identical to those places,” he told me. “So when tech companies saw what’s happening, we all pretty much shifted from working on our startups to working on trying to stop it, because it would mean the end of the Israeli ecosystem, the end of ‘Startup Nation.’”

This is not a marginal issue, either. According to the Israel Innovation Authority the tech industry provides 54% of Israel’s exports, giving it an enormous potential influence.

For one, tech leaders are deeply concerned that foreign investors will take flight, unnerved at the chaos unleashed by the government’s moves.

“If these laws pass… it’s [would put] a complete stop on any investment activity. A complete full stop,” said one source of the chilling effect, citing a recent statement by Moody’s, the credit ratings agency, that warned that a judicial shift could have a negative impact on the country’s sovereign credit profile.

Dror is one of about 500 tech CEOs who set about lobbying MPs on the issue, sometimes, as mentioned, even showing up to the restaurants the MPs frequented.

“Part of our ability to operate around the world and sell our products is because we are following a certain ethical legal compass that is enforced by our legal system and our Supreme Court,” Dror said. “Once those judges are controlled by politicians, we will not be able to do that. I announced immediately that I would not invest in any Israeli startup if Israel is not a democracy, period.”

Sal’ee said the government’s actions were now jeopardizing the money that would go into the economy and startups five or six years from now, as well as the country’s tax base: “About 25% to 30% of the government’s income comes from taxation of the tech industry. So the impact [of the reforms] would not only be on the tech industry, but on the whole of the economy in a very, very dramatic way.”

Sal’ee believes that Israel will eventually also lose talent, as the high cost of living in the country, plus an increasingly authoritarian society, would encourage others to move away or stay abroad rather than moving to Israel.

The so-called “reforms” of the judiciary could also end up threatening the IP of Israeli tech companies, too, critics say.

“When you’re a tech company… if you cannot go to a court and assume that the court is independent, why would you try to keep your intellectual property in the same country?” asked Dror. “This is the most basic, basic problem that that we have [with the proposed legislation]. If the country moves from a functional democracy to a dysfunctional democracy, lots of the reasons that we had to operate in Israel disappear.”

Erez Shachar, managing partner at Qumra Capital described to me how the tech industry had sparked the initial demonstrations because many realized the industry would be finished under the so-called legislative reforms: “People would be registering companies in Delaware or outside of Israel, registering the IP outside of Israel. The Israeli tech industry wouldn’t suffer much, but Israel would suffer tremendously from this.”

Chemi Peres, co-founder and managing general partner of Pitango, couches the current crisis in broader terms:

“The government initially had some great plans, to address the cost of living, to expand the circle of peace in the Middle East, to address the threats such as Iran. But I think what happened is that they started with an attempt to rebalance the weight of the judicial branch, which over the years has gained too much power. It was too early, too fast… and the response was immediate and very wide, crossing political camps… The good news is that the response was was also very wide, and very determined. And we learned through the process that Israel will never be a non-democratic state.”

He is confident that ultimately there will be a resolution: “I’m 100% sure that it will not turn into a dictatorship… There is no way it’s going to. There’s no way it’s going it will happen in Israel. And nobody wants to reach a point where we are having a civil war or something like that… We know that nobody is going to leave… There is no place for it for us besides, so we have to learn to live together.”

Others are not so sure that things will be resolved so seemingly easily. Haggai Scolnicov — co-founder CEO at Optimeet AI and the former chief scientist of Meta-acquired Onavo — is adamant the protests will continue.

“I have been out and about on the streets of Tel Aviv. There’s been an amazing volunteer movement and some spectacular generosity from successful, exited founders,” he said. “There have been VC funds who have just stepped up and said, you know the way we spend money on little meetups and parties? We’re going to spend that money now on this. People have spent it personally and as firms.”

Adam Fisher, Partner at Bessemer’s Venture Partners Israel office since 2007, thinks that while the government’s proposals are concerning “the reality is that Israeli high tech is very resilient for all kinds of reasons… For Israeli companies, 95 if not 100% of their business is not in Israel.” He points out that if confidence fell in Israel, costs would lower, which would be perversely good for the cost basis of companies.

However, he says Israel would lose in the long term: “The business community here prefers a liberal democracy over a populist democracy, and in high tech, perhaps more so than other industries… Historically, we haven’t asked anything of the government. No special tax or benefits. We’ve asked for really very little except for stability.” But, he says, “I think this has been an awakening.”

So what will happen next? The next key date, protesters believe, will be April 26 — a symbolic day in Israel as it is the country’s independence day.

Many believe Netanyahu will want to avoid protests, but as things stand now, that seems unlikely to happen.

Israel’s political crisis has activated its apolitical tech industry — and there’s no turning back by Mike Butcher originally published on TechCrunch