Israel’s Ultra-Orthodox Are Getting Their First Startup Fund

  • Israeli high-tech leaders invest in fund to boost new sector
  • Fund to give haredi entrepreneurs credibility in VC world

The first investment fund for Israel’s ultra-Orthodox startup community is about to close, offering a new springboard for religiously devout entrepreneurs whose centuries-old garb and insular ways haven’t made them a natural fit for the tech scene.
 
With a target of $5 million, the 12Angels fund is meant to encourage the slow but steady inroads the ultra-Orthodox, or haredi, community is making into an industry dominated by veterans of elite Israeli military units. Its first investment, of $150,000, was supplemented by the head of Facebook Israel, the chief scientist’s office and another fund. The company, developing a cyber tool for websites, raised $1 million in total.

Moshe Friedman

Photographer: Rina Castelnuovo/Bloomberg

“We think our $5 million will bring $50 million and start to move this whole process forward,” said Moshe Friedman, the ultra-Orthodox autodidact behind both the fund and KamaTech, a venture aimed at getting more members of his community into technology. He said he hopes to close the fund by Aug. 1.

Some of Israel’s top executives -- including the country manager of Facebook Israel, Adi Soffer Teeni; Chemi Peres, managing general partner of Pitango Venture Capital, and Dov Moran, founder of M-Systems Flash Disk Pioneers Ltd. -- have invested their own money in the fund. The government is also investing in haredi entrepreneurs, eager to keep Israel a global tech hub that now produces about a third of the country’s economic output.

Read more about employee shortage in Israeli tech industry

The road from religious texts to computer coding has been a rocky one for the ultra-Orthodox, who now account for about a tenth of Israel’s 8.7 million people. The community largely shuns military service -- the crucible for much of Israel’s technology -- and its schools spurn English and math in favor of religious studies. Once out of school, men -- known for the beards, black suits and dark fedoras favored by Eastern European Jews of centuries past -- generally spend their days studying ancient texts. Their frequently low-paid wives and government handouts provide for their families, which are among Israel’s poorest.

But high poverty rates and internet penetration have made government efforts to bring ultra-Orthodox men into the workforce more successful in recent years. That’s good news for the economy, because the community is expected to make up 20 percent of Israel’s population by 2040, according to the Central Bureau of Statistics.

Those ultra-Orthodox men who do teach themselves to code and want to break into the industry often come up against a formidable wall of stereotypes. Friedman aims to change that with his program of haredi accelerators, backed by the U.S. government and private money, that has helped to build up his database of ultra-Orthodox entrepreneurs to 1,100 names, from five less than four years ago.

Not Interested

“The venture capital funds weren’t interested” in haredi startups, he said, “and it was really important to bring capital that would also help them go forward and gain expertise and experience. They need smart money.”

Ysrael Gurt, a member of a haredi sect that has always worked, is a longtime member of Google’s hacker Hall of Fame and has identified security breaches for Microsoft. His company, Reflectiz, is developing a platform to keep websites safe. He founded it with a secular Israeli and their first employee was a Druze. It’s the first company in the 12Angels portfolio.

Read more on how the ultra-Orthodox are helping ease tech labor shortage

“There is a very good selection of people supported by KamaTech and the pinnacle of their startups is an investment opportunity where we, as investors, need to get into the picture,” said Guy Horowitz, partner at Deutsche Telekom Capital. Without the community-specific fund, the haredi startups were likely to have been overlooked, he said.

Friedman says haredim used to be turned down when they would approach veterans of Israel’s tech industry for investment. They would say, “Haredim are good at analyzing Rashi, not at technology,” he recalled, referring to a medieval French rabbi who wrote commentaries on canonical religious works. “There is no way you will succeed.”

Things have changed, and “I hope that our next fund will be for all the Israeli minorities,” he said.

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