Israeli startups in the pandemic COVID-19: how to get out of the crisis

When OurCrowd announced three weeks ago it was launching a $100 million Pandemic Innovation Fund it seemed at once both the most obvious and the most counterintuitive thing to do. Jon Medved, OurCrowd’s founder and CEO, sees both sides. “I’m very optimistic long-term about investment and how we’ll do relative to others. I’m just not Pollyannaish about the danger of the crisis – this is a crisis unlike any other,” he told Haaretz in an interview. “It’s turned out that it’s really a ‘Tale of Two Cities’ moment, the best of times and the worst of times.”

Startups lucky enough to have technology that meets the needs of the pandemic era have been able to secure venture capital funding, and VCs themselves have even raised money for new funds. But a web search found that OurCrowd is the only VC investor in the world to have announced a dedicated fund for pandemic-related technologies.

It’s not that Medved is the world’s only bullish venture capitalist. The difference, he said, is that OurCrowd is freer than traditional VCs to launch funds when it wants. Most raise money in three-to-four-year cycles and can’t easily change the pattern because an opportunity arises.

Unlike traditional VCs, OurCrowd sources its capital from both institutions and individuals. Its Pandemic Innovation Fund will invest in health care startups developing technology to deal directly with pandemics as well as companies with tools for what’s being called the “pandemic pivot,” the start of an era in which things like remote work and learning are much more widespread.

Skeptics say that when the virus recedes, either on its own or because a vaccine is developed, people will return to their pre-crisis behavior. They may be Zoom-conferencing now, but they’ll return to in-person meetings the minute they can. Medved disagrees.

“Digital ground taken is never surrendered. Zoom isn’t giving up. We’re not going back to a pre-Zoom world. When I was doing Zoom calls a year ago, everyone thought it was whacko. ... But Zoom will stay with us whether there’s a vaccine or not. The universities, higher education, all education, is fundamentally changed forever,” he said.

OurCrowd has adjusted to the new reality. Its investor conferences are glitzy events that draw thousands of attendees. When it held its last one, in Jerusalem February 13, the pandemic was raging in China and 1,000 registrants from Asia withdrew. But Israel would only confirm its first coronavirus case five days later; it was still business almost as usual.

OurCrowd’s conference Monday to highlight its new fund and the technology arising from the pandemic will be fully online. It will comprise a mix of live and prerecorded talks, with a repeat program to reach participants in different time zones.

Going virtual is no small thing for Medved, who says he knows many people who had COVID-19, including a few who died of it. He is extra-cautious about face-to-face contact. “I’m a touchy-feely kind of guy and I‘d like it to come back … but I’m absolutely certain we will measure much of reality as before and after the crisis because things change so fundamentally,” he said.

One of the biggest pandemic plays in OurCrowd’s portfolio is MigVax. The company was in the final stages of developing a vaccine for infectious bronchitis virus, a coronavirus that infects poultry, when COVID-19 erupted. It is now developing an oral COVID-19 vaccine, a step ahead of much of the competition.

Another startup, Tovala, addresses changing consumer habits in the era of social distancing. Tovala delivers packaged fresh food to your home. The first delivery includes a smart oven that scans the package for cooking instructions.

“They don’t send you prepared food – it’s fresh. People are tired of getting takeout, and this company is off the charts,” explained Medved.

But for many startups in Israel and abroad, the big challenge is just surviving the pandemic. Money is short and customers are scarce. Globally, venture capital investing has slumped some 20% since the onset of the pandemic, according to the industry research firm Startup Genome. An Israel Innovation Authority survey of local startups taken last month found that 45% won’t be able to survive more than another six months at their current level of income and expenses. Nearly two thirds say revenue is down at least 25%.

Medved said one OurCrowd portfolio company has been forced to shut. It was in the midst of raising badly needed capital when the coronavirus struck and the entire VC world froze. It couldn’t raise the capital in time. OurCrowd is working with its other startups to help them trim costs, find new customers and reposition themselves for changing times. In that respect, Medved said he believes Israel has a competitive advantage over its peers in Silicon Valley and elsewhere.

“We’re very good at crises. We’re not just the Startup Nation, we’re the Crisis Nation. We’re also good at capital efficiency in startups – Israelis are not big money wasters. ... We can make do with less. We’re very international,” he said.

But being international may not be the advantage it once was, warned Medved. The U.S.-China trade war, competition between countries for medical gear and the near-disappearance of air travel are conspiring to raise higher borders between countries. The one positive thing Medved said he can point to recently is the unprecedented cooperation across borders between scientists.

The retreat from globalism could affect Israel in one particularly important way, he said. Israel gets the lion’s share of its technology-investment capital from abroad, especially the U.S. In the first quarter, Israeli VC funds accounted for only 7% of the $2.7 billion investment in tech startups.

Normally, noted Medved, the huge overseas share of investing is as a badge of honor for Israel, proof that its tech sector can attract money from all over the world. But big investors won’t risk millions of dollars on a startup without personally meeting the team of entrepreneurs who will be spending the money.

“The problem is how does that hold up in a world where people can’t travel, the degree to which other venture capitalists will continue to invest if they can’t see people face-to-face,” Medved said. “It remains to be seen.”

David Rosenberg