Israeli high-tech is enjoying a boom in terms of fundraising and exits, but the steady strengthening of the shekel against the dollar could constrain its growth, industry executives said Monday.
Startups raise their capital and sell their products and services in dollars that are becoming worth less and less in shekels. The greenbacks Bank of Israel rate was set at its lowest in seven years Friday, and currency traders warned it could go much lower.
Along with a rise in local salaries of between 5% and 15% in the last year high-tech companies are also seeing their costs rise 10% because of the eroding dollar, said Rami Fital, chief financial officer of the 83North venture capital fund. As a result, the interval between funding rounds is shortening. A company that had enough capital for two years has lost three months of it just because of the exchange rate.
Yossi Frank, CEO of Energy Finance Financial Risk Management, warned that Israel cant compete in the global market at a dollar rate of 3.50 shekels. The last time that happened, in 2008, the Bank of Israel and the Finance Ministry cooperated to fix the problem. This time officials havent acted, whetting the appetite of currency speculators, he said.
High-tech is always thought of as less sensitive to the exchange rate, but today that isnt the case, said Frank. We are seeing the dramatic strengthening of the shekel prodding high-tech to reduce jobs and move operations overseas. The lack of intervention by the Bank of Israel and the treasury is significant for the entire economy.
Fital said the strong shekel was making Israeli tech companies less competitive than European rivals, including up-and-coming tech centers. Countries that a few years ago didnt appear on the global high-tech map are investing huge resources to develop a local industry, he said.
On Friday ECI Telecom, a veteran Israeli maker of telecommunications equipment, reached an agreement with unions after a bitter struggle to lay off 60 employees. The company had sought to ax as many as 100, citing a drop in aid from the Israel Innovation Authority and a significant strengthening of shekel against the dollar.
Not only are more mature, growth-stage companies feeling the dollar pinch, so are younger ones because they have fewer financial resources to cover the high dollar cost of local salaries.
Venture capital investors, like Tal Slobodkin of StageOne Ventures, an early-stage investor, are advising their portfolio companies not to try and beat the forex market. Lets say a companys expenses are 80% in shekels, it should have 80% of its balances in shekels. That way companies solve the most of the problem of risk.
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