Financial Crisis to bring recession to israel

We’ve all been watching the recent developments of Wall Street with a keen eye.  How, if at all, will it affect us individually?  Will Israel be dragged into a recession as well as the rest of Europe?

An inevitable part of the US’s historic $750 billion bailout package is the huge amount of paper that the government has to print.  The money has to come from somewhere, and usually that means selling more treasury notes and bills, or bartering paper with foreign governments.

With all that new money hitting the markets, you’d expect the dollar to drop in value.  However, the world economy follows the USA like a herd to a shepherd.  All the talk about Euros, shmooros…  When you want a safe currency in times of crisis, you don’t look to Europe with one of its EU members (Iceland) on the brink of bankruptcy, nor do you look to China or Japan, as they are having their own crises.  You buy dollars.  And that’s exactly what’s been going on since the US bailout plan was passed.

As a result, major and 2nd tier currencies alike have lost approx 5% in value against the US Dollar in the past week.  In Israel, the drop was sudden and major.  Two week ago, the Shekel (NIS) was trading against the USD in a range from 3.48 to 3.50.  Almost overnight, the Shekel devalued against the dollar to 3.70.  That’s a 5 percent change.

That’s very good for Israeli exporters, tourism, and for Israelis who’s salary is linked to the dollar, and for technology companies who raised funds in dollars.

That’s very bad, however, for importers, most Israelis who do not have linkage on their salary, and just about every consumer.  Prices will start to rise at the supermarket, which will in turn reduce consumption, and bring on inflation, and then recession.

Much of the strength of the Israeli economy over the past few years has been related to the strength and new found autonomy of the Israeli currency.  Breaking with the norm of the past 60 years, for example, Real estate was being quoted in Shekels.  Israelis had a new sense of pride in our national currency.

Now with this recent crisis, and the fall of the Euro as the other viable currency alternative to the almighty dollar, it appears Israel’s economy will be waiting for the other shoe to drop.

Financial Crisis – Hi Tech in Israel Affected

This article was posted yesterday on techexposures.com and it definitely gives us something to think about what’s in store for the hi-tech industry in Israel during the coming months.

The Financial Crisis – Internet startups will suffer

I attended a conference of about 40 CEOs and founders of start-ups last week in Herzlya, Israel.  The focus of one of the meetings was to discuss the current financial crisis and how it will affect the operations and viability of these companies.

One of the CEOs commented that he had just raised several million in capital for his start-up and that the money had hit their account only three weeks ago – just on the cusp of Wall Street’s meltdown.  He said he felt like Bruce Willis in Die Hard as he ran as fast as he could from a burning skyscraper that was about to explode.  He remarked that had the deal been delayed for even a week, he probably wouldn’t have been able to close the round, or that the terms would have been severely altered.

In attendance were also partners of some big name VCs.  One of the VCs (who is headquartered in Silicon Valley) told us that he has already instructed his Israeli portfolio companies to begin firing employees.  In his words,

“It is not enough for the CFO to tell me that they didn’t hire the 3 that were in budget.  They also have to fire existing employees”.

He believes that this (recession) downturn will last throughout 2009 and into Q1 of 2010.

Another VC thought that the amount of deals in 2009 would be lower, but that there will still be dealflow, and that this is actually a good opportunity for raising smaller sums (e.g. $200K).  The bigger VCs have traditionally avoided investments of less than a few million dollars.  Now it appears that many VCs will be ‘competing’ with angels and private equity groups to find the gems out there for $500K or less initial investment, with an eye on sustaining them until a Series A round can be raised in better market conditions.

The affects of the fallout from Wall Street in the coming months are too early to measure, but it’s clear that most sources of new funding will dry up at least until the credit crisis has passed.  Existing companies will have to squeeze their purse strings tight, and possibly begin proactively laying off to ensure enough capital remains to keep the mother ship afloat.