NFX’s fast track for new startups: answer within 9 days, money within 3 weeks

When investor and General Partner at NFX Gigi Levy-Weiss launched the FAST rapid emergency investment track in mid-April, he had an ambitious goal: to provide responses within nine days and money in the bank within three weeks. "We must not allow the high-tech industry to fall behind the world," he wrote on X (formerly Twitter). "Let's help the industry recover and close the gap that has opened."

In reality, it seems Levy-Weiss was a bit too optimistic. Only last week did the fund identify how many startups will receive funding under the program (five now, and potentially three more). However, it's hard to blame the extended timeline on Levy or NFX: within two weeks, the number of companies that applied for FAST exceeded 500 — more than the total number of startups founded and funded in Israel in 2023. "This has already been a success in my eyes," said Sarai Bronfeld, Principal Investor at NFX who oversaw the selection process.

Gigi Levy-Weiss and Sarai Bronfeld.

Levy-Weiss launched the fast track during one of the toughest periods in the history of Israeli high-tech, which has been coping with three consecutive crises: the global high-tech crisis of 2022, the judicial reform in Israel in 2023, and October 7 and its aftermath, which resulted in many entrepreneurs being called up for extended military reserve service. Within this context, NFX sought to launch a fast and time-limited investment track to support the local ecosystem.

"The first goal of the fast track is to encourage the establishment of new Israeli companies," Bronfeld said. "We saw that in 2023, only 400 startups were funded - something out of 2003. We realized that Israel is not recovering from the global high-tech crisis, and we wanted to encourage new companies. Secondly, there are now seed funds with available money that can be invested in companies which raised seed funding two years ago but today can't raise a Series A, not because they aren't good, but due to the challenging market. Seed funds have a huge opportunity to extend rounds of companies that previously missed out. The goal is to prompt funds who have been sitting on the fence to start writing checks again. When we act, others will follow."

As part of the selection process, NFX used an AI-based management system, which automatically identified that 20% of the applications were in fields that the fund does not invest in at all, such as chips, robotics, offensive cyber, and medical devices. The remaining 402 companies proceeded to the evaluation phase led by the investment team. Of these companies, 75% were previously unknown to NFX. "We see this as a success since it likely indicates recently established companies," Bronfeld explained. "We track a lot of high-tech entrepreneurs and know the ecosystem well, including almost all of the companies operating in our investment fields." Additionally, most of the companies, 56%, had not yet raised or had raised very little (pre-seed), and only 44% were companies that had already completed seed funding and sought to extend this round. "These indicators show that we have motivated entrepreneurs ready to come off the sidelines and establish companies in Israel," Bronfeld said.

Most of the companies, 29%, are AI-related, including, “companies building applications based on existing AI models, dental data analysis using AI, chatbots that help sell cloud software, customer service chatbots, agricultural land analysis using AI, and AI-based cybersecurity solutions. We saw many new sub-fields, ones that have not yet been established, but we know that they will emerge due to AI development, such as AI product security. One company protects against phishing in online workspaces like Slack and Zoom, such as attacks using deepfake to impersonate employees. These are areas where AI integration is just beginning, and therefore new needs are emerging.

"We have also seen companies that are disrupting very old markets. For example, submitting government tenders is a long and tedious process, and there's a startup that built a product based on a LLM (large language model), the technology behind chatbots like ChatGPT, that writes the tender for you in minutes. Then a small company can apply to 500 tenders a year instead of five. This demonstrates how AI doesn’t simply take jobs away but improves performance and also enables the creation of new companies and jobs by providing solutions to technical, bureaucratic, and tedious problems."

Other popular fields among the companies who applied to the fast track were biotech (18.5%), cyber (11%), and digital health (11%). 9% of the companies operated in fintech, 8% in marketplace products, 3.7% in insurance tech, and 2% in gaming. Out of the 402 companies that passed the initial screening, 66 (16.5%) advanced to the meeting stage with Bronfeld.

"They were chosen based on the fund's usual standards: the company’s potential return on investment must be significant enough to repay the entire fund. As a $450 million fund, I look for companies whose exit will be in the billions. Even if they have a good idea, if the market is too small or saturated with competitors, then the company won’t advance to the next stage. We then examined the entrepreneurs and their backgrounds, their ability to solve the problem they presented, and assessed competitors. Another issue is the quality of the materials: how the presentation looks, whether it’s written in good English. It’s not the most important thing, but it does earn points," she explained.

During the personal meeting stage, the entrepreneurs’ ability to coherently explain their solution and the market in which they operate was assessed. "This helps us understand how they will sell in the future to customers, recruit the best employees, and raise money," Bronfeld said. "Their charisma and passion for what they do are also important. We also evaluated their familiarity with customers, competitors, and the speed of sending materials. In the meeting, I also ask for introductions to two customers; who their customers are (e.g., company size) is a strong indicator. I wanted to see how much they researched and studied the market they aim to win. Whether they spoke with ten potential customers or a hundred. I also requested a competitor analysis - a serious company already has this prepared. If it took them five days to send me such an analysis, they usually didn’t have it ready."

Sixteen software companies and four biotech companies advanced to the final stage, during which entrepreneurs met with the fund's American partners who visited Israel in mid-May. Following these meetings, $20 million in funding were agreed upon for five companies, and three more are expected to receive funding totaling $6 million depending on reaching certain milestones or completing an establishment process.

"This is the most successful fast track we’ve had so far," Bronfeld said. "I believe the high quality of the companies resulted from many entrepreneurs hesitating to approach funds in such an unstable period. The launch of the fast track pushed those entrepreneurs to establish a company and seek investors. I hope other funds will follow our lead and return to investing as usual in Israel. The quality of the entrepreneurs and human capital stood out among the hundreds of companies that applied. Israeli entrepreneurs have revolutionary ideas, and I believe we can catch up with our competitors in Silicon Valley. Now is the time to act."

However, Bronfeld expressed concern about the decline in the number of founding teams that include female entrepreneurs: "The numbers of female entrepreneurs are decreasing, and this was evident in the fast track applications. About 5% of software companies have a female founder on the team, and 30% of biotech companies (there have always been more female entrepreneurs in biotech). In the past, we saw higher numbers – 15% of founding teams in software included female entrepreneurs. I think, among other things, this is a result of the war. More women bore the burden at home, and their work has been affected. For women who were considering building a startup but had to suddenly manage alone at home while their partner was in reserves, the chances of them founding a startup are significantly smaller."

Bronfeld added that NFX intends to make the fast track a regular annual initiative. "From conversations with entrepreneurs, I saw how unstoppable the Israeli entrepreneur is, and it strengthened my belief in the uncompromising Israeli entrepreneurial spirit," she said. "They deliver results no matter what happens, even during rocket sirens, they disappear for a few minutes and immediately return sharp, focused, and determined. This increases trust in the company and attests to their mental resilience. We came out of this track feeling strengthened by the significant investment we are making in Israel."