"Do the judicial reform and the war harm Israeli high-tech? I think they do," Prof. Amnon Shashua told the Up & Coming annual tech conference held by the Goldfarb Gross Seligman law firm and PwC Israel financial consultancy firm.
Shashua told PwC Israel partner and head of assurance Yaron Weizenbluth, "If we relate to Israel's macroeconomic difficulties, we should first define them: one difficulty is the judicial reform and all the protests that accompanied it, and since October 7, the war and the uncertainty. Does it harm high-tech? I think so, but let's define what harm is. This means harming our work with cusomers, because our customers are outside of Israel, as well as harming the ability to raise money and harming the valuation of the companies. The question arises as to whether there is any Israeli discount because the company is managed in Israel, and if you put it in Silicon Valley, maybe it would get a higher value."
He continued, "On the one hand, Israeli talent has not been harmed - it is true that at the beginning of the war about 20% of the workforce in high-tech was called into the reserves, I know this from Mobileye, but today this is already only a few percent. I did not detect any material loss of personnel, of people who left Israel and moved abroad. Today I employ 5,000 employees in Israel - 4,000 employees at Mobileye and another 1,000 at other companies, and not one has left. On the other hand, it's hard to come to Israel, people don't come to Israel, even American airlines have stopped flying to Israel, which is a total scandal, so it gives the feeling of a war zone. This already hurts us, because out of sight is out of mind."
Shashua added, "I think that, on the whole, both customers and investors do not like uncertainty, and we are now living in security uncertainty - not so much uncertainty about Gaza, but rather what is happening in the north and the questions of whether there will be an all-out war, and whether it is necessary to be prepared, and will there be business continuity. As Israelis, we are used to uncertainty and routine under fire, but investors and customers do not like uncertainty."
Shashua returned to the topic of company valuations and observed, "It is true that the value of the company varies from industry to industry, and perhaps there is less damage in cybersecurity than in other industries, but on the other hand I think that the overall damage is very short-term, until the uncertainty ends."
"I think it has nothing to do with which government governs our country - unhealthy governments are already a global disease, and there are very few countries that have worthy governments and worthy leaders. The problem is the uncertainty, and I believe that by the end of next year we will be able to get out of it."
"Today every company calls itself AI"
Shashua was asked about the many investments worldwide in artificial intelligence and the many deals taking place in the sector. He said, "Today every company calls itself AI, so it is difficult to measure how many such companies there really are, because if you add the words 'AI' to the field of activity, the valuation of the company already increases somewhat."
According to him, "Generative AI is a field in which hundreds of billions are invested, if in terms of Nvidia's chips and cloud providers which are increasingly equipping themselves with more and more infrastructure to provide computing to people who build such models."
Shashua pointed out that he himself has a company in the field, AI21, and added, "At the moment it is not clear how to build a business in this field. Even OpenAI, which is the most successful company in the field today, loses $3-4 billion a year. Summarizing articles, producing images, doing a better search - it's all very useful and very nice, but it's not a revolution.
"So why are hundreds of billions invested in the field - including me in my company - when it is not clear how to make money in the field? It is difficult to even define what the generative AI product is, because there are hallucinations and a lack of truth-telling about these systems. It is not that you can develop a routine and forget about it. For example, if I ask the system to write code, who validates the code?
"So why invest hundreds of billions? The reason for this is that, unlike the technological waves that existed in the past, in this technological wave there are signs that sometime around the corner a broad intelligence will develop here, and the intention is that those systems can imitate human intelligence in solving problems, and we will reach a situation where in all areas of human knowledge, the systems will be able to solve problems instead of human experts."
Shashua also addressed the question of the feasibility of opening new companies in the field and where. He says, "10 months ago I founded an AI company, and it is still in stealth. I undertook an examination of where it is better to register it, here in Israel or in the US, and I came to the conclusion that opening in Israel is better. If you open a company in the US, but the management and control is in Israel, the company will be subject to Israeli tax, and no matter what stories are told, you will not enjoy all the tax discounts you receive as an Israeli company, which could be a lot. If you want a US company, it requires moving to the US and in my opinion, there is no point in opening a US company if the management and control are in Israel."
"Always aim for an IPO"
Shashua also spoke about the subject of research in Israel. He said, "The military side is progressing well, because in war you develop technologies" - but the research side in academia is neglected. He stressed, "I think that in recent years the research universities have dried up a bit. There are fewer budgets, the research grants are not impressive, and there is a possibility of long-term damage. We have somewhat forgotten research. There we need to put emphasis in terms of budgets and research funds." He added, "A research fund is not such a big investment, with a few hundred million dollars you can do a lot, and the state doesn't put enough money there."
Shashua also referred to his vision on founding companies, and said that his message when building a company is always to aim for an IPO. "A non-profitable company challenges your right to exist, and once you challenge your right to exist, even if an acquisition or merger comes along, they will not be profitable. There are indeed exceptions in history, for example, WhatsApp which was sold to Facebook - but these are a minority." He concluded, "I look at companies that were sold only because of their technology and not because they were a profitable business, and these are deals that range from around a billion dollars or less. It's nice and impressive, but if you want to build something big, you have to think about how you actually build a business, who the customers are. It's not only revenue, but you also have to be profitable. Once you are profitable, you will be able to reach impressive valuations."
Published by Globes, Israel business news - en.globes.co.il - on September 4, 2024.
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