Human Capital Could Stem Israel’s Boom

Above: Sean Banks of TTV Capital moderates a panel on investing in financial technology featuring (from left) Nelson Chu of Kinetic Ventures, Lucas Timberlake of the FinTech Ventures Fund, Brian Rosenzweig of JANVEST Capital Partners and Karin Mayer Rubinstein of Israel Advanced Technology Industries.

The Start-Up Nation is rolling in foreign investment but risks running short of human capital, the head of Israel Advanced Technology Industries warns.

“I blame Waze for that,” IATI CEO Karin Mayer Rubinstein said during the first Atlanta-Israel FinTech Innovation Conference on Wednesday, June 29, at the Buckhead offices of Greenberg Traurig. “It’s so easy to get rich.”

That’s the attitude of too many young Israelis since Google bought the crowd-sourced mobile mapping app for $1.3 billion three years ago, said Rubinstein, who leads Israel’s umbrella organization for the high-tech and life sciences industries. Instead of core research and development, Israelis come out of the army looking to create the next hot app and cash in.

One result is an overabundance of Israeli cybersecurity companies, many of which have nothing special to set them apart, said Brian Rosenzweig, managing partner of JANVEST Capital Partners, which focuses on investment in innovative emerging technology companies in Israel.

He warned of a valuation bubble in cybersecurity and predicted that many of the “non-game-changing companies” are going to fail soon. “I think we’re going to see this cybersecurity bubble burst in the next six to nine months.”

The bigger problem is more fundamental than a price bubble, though. While Israel has too many people in life sciences, Rubinstein said, the country faces a shortage of 10,000 engineers. “We have a huge problem with human capital.”

But she expressed optimism that an investment in science, technology, engineering and mathematics education the next five years will get Israel back on track.

Meanwhile, she said, Israel remains one of the strongest high-tech ecosystems.

“It’s the world’s greatest sandbox,” Rosenzweig said, with strengths in artificial intelligence, big data, and cyber and information security that make the country appealing for investment in innovation in financial technology, or FinTech.

FinTech was the focus of the conference, organized by Conexx: America Israel Business Connector and the Israeli Consulate General with the help of the Metro Atlanta Chamber and others. The nitty-gritty of the conference was the one-on-one meetings between Israeli FinTech companies and potential American investors and partners.

Because almost three-quarters of the world’s financial transactions pass through Atlanta, this area is the natural entry point for Israeli businesses hoping to be part of the technology- and culture-driven changes in financial services, from mobile payments to alternative lenders to replacements for national currencies. (The conference experts took it as gospel that blockchain, the distributed ledger technology behind Bitcoin, will have transformative applications throughout the financial industry, but it’s beyond my knowledge and understanding.)

During the same panel discussion on FinTech investment at which Rubinstein and Rosenzweig spoke, Kinetic Ventures’ Nelson Chu drew parallels between financial services now, from lending to payment processing to purchasing, and the telephone industry two or three decades ago. Chu said most analysts didn’t expect the telephone companies to survive, but they did. They just don’t make their money from phones plugged into outlets in homes anymore.

TTV Capital’s Sean Banks agreed that the telephone analogy works. He pointed to NCR, which started as a mechanical cash register company and now is one of the world’s top 20 software sales companies.

Banks said the underlying guts of the payment system are stable, but the front end of payments and relationships will change dramatically.

And Israeli innovation is expected to play a key part.