The Israeli Political Shift

After four elections in two years and a vibrant political battle, Naftali Bennett became Israel’s Prime Minister. The former prime minister, Mr. Benjamin Netanyahu, held the post for twelve years. Mr. Bennet will serve as prime minister for the next two years and then be replaced by the centrist Yair Lapid, who will also exercise the role for the following two years. Netanyahu’s incapacity to form a governing coalition with the majority of the 120 members of Congress partially explains his fall. Bennett & Lapid’s new government breaks a long political discussion and carries the most diverse coalition Israel has ever seen.

Born in 1972, Bennett is a son of American parents, the first Israeli religiously devoted prime minister, and significantly related to the innovation ecosystem. Part of his track record in the high-tech world includes co-founding Cyota, a cybersecurity company sold to RSA Security in 2005 for $145 million. He was also an early investor in Payoneer, which recently went public via a SPAC merger at a value of more than $3 billion. The new premier served as the defense minister, economy minister, and education minister throughout his political career, among other roles. Curiously, our Head of Israel, Boaz Albaranes, who was the former Israeli Economic Consul in Brazil, worked with Naftali Bennett during his tenure as the Minister of Econmy. In addition, they also served in the military together.

The winning coalition arrives with unprecedented constituents. It incorporates an Arab party and two Arab cabinet ministers (Regional Cooperation and Finance) for the first time. Besides that, the incoming Health Minister was the first openly gay Congress member to head a major party. The alliance also has two longtime disabilities activists: Israel’s first deaf Congress member and a veteran congresswoman and minister with muscular dystrophy. Finally, nine out of 27 cabinet ministers are females, the highest number in Israel’s history.

Ultimately, the new government brings into power a broad coalition of eight political parties with constant proposals in the latest election campaign, including evolving the relationship between religion and state, reducing living costs, and solving the quality of life issues. Israel has not approved a budget since March 2018, and the new coalition has a few months to enact one. Otherwise, Congress will dissolve it and run recent elections.

In our perspective, Bennett’s affinity with the venture capital market will sustain the Israeli VC ecosystem, which is already highly consolidated. The future government should further strengthen its potential to keep attracting international attention and continue evolving quickly. The entrepreneurial incentives in Israel have proven highly significant, including a large budget for the Innovation Authority, which will probably remain intact in the coming government (like it did historically, regardless of the party in power).

Regardless of the political changes, we see little influence in the Israeli venture capital ecosystem and continue to believe in its potential as one of the greatest startup hubs around the world. This year, our deal flow has been hotter than ever before, and we already have signs that we will hit another record of assessed companies by the end of 2021.