Bessemer Venture Partners venture capital fund has recommended that money managers reduce exposure to the shekel due to the uncertainty surrounding the Israeli economy because of the planned judicial reform.
Bessemer wrote, "Our high-level recommendation is to maintain no more than six months of shekel exposure (only short term deposits) and to seriously consider keeping foreign currency in foreign bank accounts (multiple foreign accounts for larger cash positions).
Bessemer is one of the largest venture capital funds in the US with $20 billion under management invested in 315 portfolio companies including 44 investments in Israel and a similar number of exits from Israeli companies over the years. These included Wix, Fiverr, Mellanox and Intucell. Bessemer current Israeli portfolio companies include HiBob, Axonius, Melio and Papaya Global, which was one of Israel's first tech unicorns to transfer its money abroad. Bessemer's activities in Israel are managed by Adam Fisher, who probably formulated the shekel recommendation, and Amit Karp, although it was presumably approved by Bessemer's managing partners.
Bessemer wrote, "Israel is entering a new era of instability characterized not by the unstable coalitions of the past four years but by the unpredictable policies of an unrestrained government. In its first six weeks in power the government has routinely disregarded the opinion and warnings of industry experts including economists, bankers, investors and business owners instead making calls to imprison certain critics and attacking the media. Already the government is pointing its finger at the business community with the claim that any economic downturn will be because of the business community's actions and public statements, not the result of government policy and statements."
"We are aware of the variance between interest rates for dollar deposits in Israeli banks relative to US and European banks but do not think the delta reflects the risks detailed above. We also recognize that much of your cash might be locked in long term deposits at Israeli banks, so you will need to consider carefully which deposits to open and when. Before you proceed to move foreign currency between accounts, you should consult with your advisors as transfers between legal entities can trigger withholding taxes and incur other costs.
"At Bessemer we are confident in the resilience of Israeli high tech given its limited exposure to the local economy, but have significant concerns that the current climate may result in a chilling effect on non-tech foreign investment and domestic consumption in Israel that goes beyond the challenging macro-environment. Our primary business concern is the continued weakening of the shekel and the smaller risk of foreign currency controls as the outflow of funds from Israeli banks continues to gather steam. While both concerns may feel exaggerated at this moment, investor and public perception can abruptly make both risks a reality. This requires consideration of new policies covering how businesses manage their shekel exposure and how they distribute risk across different accounts and geographies."
In fact a strong dollar and weaker shekel helps tech startups because most of them raise money in dollars and pay salaries in shekels.
Published by Globes, Israel business news - en.globes.co.il - on February 20, 2023.
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