How Israel’s tech sector keeps humming with 86,000 reservists called up

When the air raid sirens went off at Tel Aviv’s Hagana train station last week, venture capitalist Ben Wiener found himself standing shoulder to shoulder in the bomb shelter with the founder of one his portfolio companies.

The man was wearing his army uniform and was so tired he didn’t notice Mr. Wiener, even though they had planned to visit a potential investor together that morning. In between the booms of Iron Dome intercepting incoming rockets from Gaza some 50 miles away, he explained he’d been doing reserve duty with an elite intelligence unit at night and sleeping only a few hours on the floor of the bunker before heading to work meetings.

After waiting a few minutes for any rocket debris to fall, the two exited the shelter and boarded a train for Herzilya to meet with the venture capital fund. The investors offered the company its next round of funding on the spot; the founder went back to his bunker and Wiener went back to Jerusalem. 

“Just another day in the world of Israeli venture capital,” jokes Wiener, who didn’t disclose details of the deal because it’s not yet public. “Running a start-up is a battle in and of itself, and now we have to manage another battle on top of that.”

Today the Israeli government announced that 16,000 more reservists would be called up as Operation Protective Edge chugs through its fourth week, bringing the total number to 86,000. That could increase even more if Israel escalates the fighting following the capture of a soldier on Friday. Such large call-ups shock the Israeli economy, and pose a particular challenge to start-ups, which are often led by former elite soldiers. But investors, entrepreneurs, and economists alike say the resilience and resourcefulness that has helped to make this the No. 2 tech ecosystem in the world keeps business humming.

“That’s quite a shock, but it’s a short-term shock,” says Rafi Melnick, a member of the Israeli central bank's monetary committee and director of the university IDC Herzliya. “The [extra] effort that people make when they come back to work makes up for that loss.”

Due to the month-long 2006 Lebanon war, for example, GDP fell by 1.4 percent that quarter. But the following quarter it bounced back, and the economy recorded more than 5 percent GDP growth for the year.

A five-man company down two men

Aharon Horwitz, a combat soldier, has just been called up for reserve duty for the fourth time in eight years. The co-founder and CEO of the Jerusalem-based start-up 40Nuggets, which helps companies customize their website experience based on who is visiting the page, has a contingency plan.

Which is good, because his chief technology officer also just got called up. That leaves only three people in the office. But Mr. Horwitz and his team have clearly documented critical functions, so that any member can perform them when others are absent.

“Reserve duty forces you to really focus your company and make sure it… can stand on its own while you’re away,” he says. “It’s definitely a test for your company and when you pass it, you feel good.”

But he has even found it possible to work some while away, given the hurry-up-and-wait cadence of reserve duty. During the 2012 conflict with Hamas, “I literally was doing sales calls near the Egyptian border near Rafah, speaking with Forbes from a little corner of base where I could get reception,” recalls Horwitz, whose company is funded by Wiener’s Jumpspeed Ventures.

Some investors might look on those in combat, intelligence, or air force units as a liability because they’re frequently needed in time of war. But not angel investor Eilon Tirosh, who intentionally seeks them out.

“These are usually the most talented guys,” says Mr. Tirosh. “Not that I don’t have a crunch. I do say, ‘Oh boy, we’re going to miss on this delivery,’ ” he adds, but the teams always manage to compensate for losses.

‘Every day I serve is a day I don’t make money’

Serving in the reserves is an integral part of life in Israel, where most men are called up on a yearly basis for as much as a month to join their units and hone their skills. Despite missing work, they still receive a regular paycheck from their employers, who are compensated by the state’s social security system.

But for those who are self-employed, it’s not that simple.

“Every day that I serve as a reservist is a day I don’t make money,” says Reuven Ben Shalom, a retired Israeli Air Force officer who now runs his own consulting firm. “So serving is volunteering.” 

It’s also a time for gathering around bonfires and recounting the old days as teens or early 20-somethings as they went through the formative experience of mandatory army service. And sometimes – particularly in intelligence units – there is a cross-pollination of ideas between entrepreneurs from different tech sectors.

So while there is a short-term economic toll, there are tangible benefits as well. Lt. Col. Ben Shalom (res.) likens his volunteering to someone in another country who devoted his time to community service.

“Did he take time off when he could have been making more money? Yes, but he needs it for his soul … and that’s what I feel like when I do my service,” he explains. “What higher thing could I do in my life than to serve in the IDF during a war or operation, to actually contribute to the defense of Israel? That has been my life mission.”