What's next?“There is a pressing and immense demand for credit to support Israeli climate-tech initiatives”
What's next?
“There is a pressing and immense demand for credit to support Israeli climate-tech initiatives”
Jonathan Benartzi, Founder & Managing Partner at Firstime VC, spoke with CTech as part of the project “Where do we go from here?”, which aims to examine how the Israeli VC industry is dealing with the crisis in the sector
"There is a pressing and immense demand for credit to support Israeli climate-tech initiatives as they venture into global markets, particularly the United States. Providing financial resources for these projects is crucial, especially during times of financial crisis. Direct lending for project development serves as a vital tool for both founders and shareholders, enabling them to finance growth and navigate the challenges of scaling their operations effectively,” says Jonathan Benartzi. Founder and Managing Partner at Firstime VC.
In a conversation with CTech as part of the project “Where do we go from here?”, which aims to examine how the Israeli VC industry is dealing with the crisis in the sector, Benartzi said that "climate tech entrepreneurs are embracing a novel financing model that encompasses a seed-to-growth approach. This innovative framework combines government equity and incentives with private sector debt to facilitate their journey towards scaling their ventures and achieving long-term profitability.
"The climate challenge is fundamentally a hardware challenge, requiring the construction of intricate, long-term infrastructure. However, within this challenge lies an opportunity for climate companies that have successfully developed groundbreaking technologies and effectively brought them to market. These companies can leverage project debt financing to expand their operations, establish additional facilities and factories, and achieve substantial growth and scalability,” he stressed.
Over recent months, we have witnessed one of the most serious crises to hit Israeli high-tech in recent decades: on the one hand, a global economic slowdown, and on the other hand, local political turmoil that sent the industry into deep stagnation. Since the general assumption is that the situation will not change in the near future, the question hovering over the industry is what can still be done to minimize the damage to the Israeli high-tech industry and how should we act so that when the crisis passes - all those involved can take a leap forward. Therefore, as part of this on-going project, we spoke with senior executives from the local venture capital industry to try and understand from them what needs to be done now to justify the reputation Israeli high-tech has earned as being creative, adaptive, innovative, agile and cunning.
Name of fund/funds: Firstime Ventures
Total AUM: $300 million
Partners: Jonathan Benartzi, Nir Tarlovsky, Keren Kopilov, Itamar Weizman
Portfolio leading: Talkspace, Pixellot, Securthings, Matics, BeeHero, Hyggia, Clarifruit, TripelW.
“Climate technology stands out as a sector that demands attention, as the urgent need for climate solutions is widely recognized”
Do you see a significant decrease in the number of new startups in the sectors you cover? If not, why? What is different in the sector?
“The climate crisis looms as a pressing and imminent threat to humanity, posing the most significant challenge and opportunity for the global technology industry in the coming decades. Recent events, such as the smoke pollution in New York caused by wildfires in Canada just last week, serve as a stark reminder that these occurrences are not confined to remote locations or the distant future; they present an immediate danger to people's lives. This alarming trend suggests a reality even more severe than what scientists had initially predicted.
“Consequently, there has been a remarkable surge in investors and entrepreneurs dedicating themselves to developing and investing in climate initiatives in recent years. The range of needs in this field is vast and encompasses diverse areas, including sustainable agriculture solutions, technologies for expanding renewable energies, advanced industries rooted in circular economy principles, and more. Israel, too, has experienced a notable upswing in the number of initiatives in this domain. It is our anticipation that, by the end of this decade, more than half of the ventures and capital will be channeled towards climate-related technology initiatives. This paradigm shift reflects a growing recognition of the urgent need to address the climate crisis and seize the opportunities it presents.”
Are there any characteristics specific to the entrepreneurs in these sectors that influence investment dynamics?
“Israel's most accomplished serial entrepreneurs are redirecting their attention and expertise towards the burgeoning field of climate tech, where their formidable skills and experience are proving instrumental in building thriving and impactful companies. The realm of climate technology encompasses a wide range of disciplines, including biology, physics, chemistry, AI, and others. As a result, entrepreneurs in this field exhibit a remarkable diversity in their backgrounds and expertise, bringing together a rich tapestry of knowledge and perspectives.
“These seasoned entrepreneurs, renowned for their track record of success, are leveraging their deep understanding of business strategies, market dynamics, and scaling operations to tackle the pressing challenges posed by climate change. Their ability to navigate complex ecosystems, forge strategic partnerships, and attract top talent is invaluable in driving forward innovative solutions that address the urgent environmental issues we face.
“By harnessing their extensive networks, these entrepreneurs are not only generating promising ventures but also fostering collaboration and knowledge sharing across disciplines. We recognize that the fight against climate change requires interdisciplinary approaches and the convergence of diverse expertise. Drawing on their experience from previous entrepreneurial endeavors, they bring an acute sense of adaptability, resilience, and an appetite for disruption to the climate tech space.”
How long do you think the global economic slowdown will last?
“The crisis in the Israeli high-tech industry is a result of the global economic downturn triggered by Russia's invasion of Ukraine. Regrettably, in Israel, this crisis has been further aggravated by attempts to overhaul the judiciary system. Consequently, investments outside of Israel have been withdrawn due to concerns about the country's stability, significantly impacting the investment landscape for both foreign and Israeli institutions in Israeli technology companies.
“However, amidst the fluctuations in the global high-tech market, climate technologies have managed to sustain their momentum. While it is evident that the tech market valuation had experienced a "bubble," we are now witnessing a return to more grounded valuations. In this context, climate technology stands out as a sector that demands attention, as the urgent need for climate solutions is widely recognized, offering significant opportunities for investments to channel towards it.”
Does the fact that large international funds have generally slowed down the pace of their investments - play to the benefit of the local Israeli funds and to the benefit of the local ecosystem?
“I support the entrance of global funds into Israel, as it brings strong benefits to the local climate tech ecosystem. This influx of international investment not only enhances the overall interest in Israeli climate tech companies but also fosters the growth and development of the field within the country. The presence of global funds supports the local ecosystem with new tools and practices which connect the developing Israeli industry with the global landscape. International investors introduce new perspectives, expertise, and resources that can propel Israeli entrepreneurs and their innovative solutions to new heights.”
Over time, we have observed challenges in engaging Israeli institutional organizations to invest in high-tech industries. Is it possible for this situation to change and have a significant impact?
“We should acknowledge the significant advancements made by large Israeli financial institutions in developing their technology, alternative investment practices and teams in the wake of the Covid-19 pandemic. The post-pandemic landscape has witnessed a notable surge in Israeli tech initial public offerings (IPOs) and merger and acquisition (M&A) activities. These developments have expedited Israeli financial institutions' fund commitments and direct investments, which have been further bolstered by the success of the incentive plan - IIA 43.
“However, the last 18-month decline in public market valuations has had a profound impact on the portfolio composition of financial institutions, affecting their capacity to increase commitments to alternative assets, including technology companies.
“As for the climate tech sector, the success and development of companies in this space have changed the approach of large financial institutions and appetite for investments. Terms such as ESG (Environmental, Social, and Governance) and Impact, which were previously broad and less clear to many investment professionals, have now evolved into the more focused and coherent concept of climate tech. This shift has brought clarity and a solid investment rationale, increasing interest and participation from institutional investors.
“Firstime VC, as one of the pioneering climate investors in Israel over four years ago, has witnessed this positive trend. Today, there is a growing number of early-stage investors in the climate tech space, and we are confident that many other institutional investors will join this movement due to the severity of the climate crisis and its profound impact.”
Are there positive sides to this crisis?
“Financial crises, with their unfortunate consequences of loss and suffering for individuals worldwide, are undoubtedly unfavorable events. However, amidst these challenging times, it is essential to recognize that market dynamics often shift towards more rational valuation models. Investors begin to prioritize current financial performance and profit-related metrics, fostering a return to traditional evaluation methodologies.
“While such circumstances can be daunting, I firmly believe that resilient companies armed with groundbreaking technologies and products that address significant market challenges have the potential to navigate these crises successfully and emerge stronger. Israeli founders and executives have already demonstrated their ability to weather turbulent periods, showcasing their resilience, adaptability, and entrepreneurial spirit. As a result, I hold a profound belief in the exceptional capabilities of Israeli tech talent.
“Times of crises provide opportunities for introspection and recalibration. They prompt companies to reevaluate their strategies, refine their focus, and streamline their operations. By embracing these necessary adjustments and leveraging their core strengths, Israeli tech companies can emerge from financial crises more resilient, efficient, and positioned for long-term success.”
When the local crisis ends - will the Israeli sector continue from the point where the crisis started?
“Throughout the years, we have witnessed the remarkable resilience of markets, with rebounds often surpassing previous levels. While it is true that certain areas may never fully return to their 2021 state, I firmly believe that the pressing issue of climate change and its inherent complexity, including the imperative for global cooperation, presents challenges that can only be overcome through the development and widespread adoption of new technologies.
“Israel has consistently proven itself as a hub of innovation, with a remarkable track record of developing groundbreaking technologies that tackle some of the world's most pressing problems. The urgency and complexity of climate change provide a fertile ground for Israeli entrepreneurs and technologists to thrive.
“Moreover, the global community is increasingly recognizing the importance of addressing climate change and transitioning to sustainable practices. This shift in awareness and priorities opens up vast opportunities for Israeli tech companies to contribute their expertise and solutions to the global stage. As the world seeks innovative approaches and technologies to mitigate the impact of climate change, Israel has the potential to emerge as a global leader in this crucial endeavor.”
How can you take advantage of this interim period (until the crisis passes) to prepare better for the reawakening when it arrives.
“Our investment approach has always been focused and targeted, avoiding a generalist approach. We believe in identifying specific themes and sub-sectors within those themes to concentrate our efforts. The global and local crises have presented us with a valuable opportunity to reassess our investment strategies and reinforce the importance of foundational elements that drive the creation and growth of large, global companies. By dedicating more time to education and nurturing our portfolio, we ensure a strong understanding of the critical factors that contribute to success.
“While Israel may have joined the global climate tech boom relatively later, the underlying foundations are robust, offering Israeli founders a distinct advantage in building global enterprises. Additionally, the new U.S. incentive plan has provided significant tools and opportunities for Israeli climate tech ventures to enter and thrive in the global markets, particularly in the United States. I think this is a great opportunity as Israeli entrepreneurs have already proven their ability to build and scale successful ventures in the U.S. market, establishing a track record of achievement.”
