Gigi Levy-Weiss: "I have never seen so few new startups in Israel and such difficulty in raising Seed"

"I have never seen so few new startups in Israel, and in my life, I have never encountered such difficulty in raising Seed funding," warned Gigi Levy-Weiss, co-founder and General Partner of the NFX venture capital fund. “2024 may end up looking good on graphs, but there will probably only be around 400 new startups in Israel, which is akin to the number from 2003."

Levy-Weiss, actively involved in the high-tech protest against the judicial reform and post-7.10 recovery efforts, expressed his concerns about the challenging landscape during the sixth annual "Trends and Forecasts" conference, organized by Guy Katsovich, Founding Partner of Fusion VC and Accelerator Program, in collaboration with Pearl Cohen Zedek Latzer Baratz law firm.

Gigi Levy-Weiss (from left), Yifat Oron, Hamutal Meridor, Liad Agmon, and Daniel Shinar.

The panel with Levy-Weiss was hosted by Daniel Shinar, CEO of Claltech, and also included Yifat Oron, Senior Managing Director at Blackstone and head of its Tel Aviv office, Hamutal Meridor, a Partner from Vintage Investment Partners, and Liad Agmon, Managing Director at VC firm Insight Partners.

“There is already a new energy in the U.S., lots of activity around Generative AI startups, and here there’s almost nothing,” added Levy-Weiss. “It started with the judicial reform, continued with the war, and unlike in the past, this time we are experiencing a series of crises that are unique to us and also happened to fall on a bad macroeconomic year globally.”

Oron suggested that the economic recovery in the U.S. might actually offset the negative impact of Israel’s crises. "If the situation in the world was bad, then our situation would be even worse. But in the U.S. the checkbooks are already open, and there is still competition for the good companies and they don’t need to compromise on valuation. In Israel, there is still plenty of money, and after 7.10, investors come here not only out of solidarity but also to invest," Oron said.

Levy-Weiss agreed with Oron that the presence of foreign money in Israel is a bright spot: "There is plenty of willingness of foreign money, and Jewish billionaires, who say ‘tell us where to invest and we’ll invest’. There is also going to be an amazing opportunity to bring to the country entrepreneurs and Jewish employees. We will see an immigration wave that could even reach 500,000-1,000,000 people. I’ve been talking to some very powerful entrepreneurs in Silicon Valley who want to come here after the war and start their next company here.”

Meridor also noted that despite the current pessimistic atmosphere, there are reasons for optimism: "I also receive a lot of feedback from U.S. investors expressing a desire to invest in Israel, and many who are also considering immigration. These are people I have known for years, and I didn’t even know they were Jewish. I think there will be a very big wave of immigration here after the war. And if you want another forward perspective, you can also look at Ukraine where in the past year 600 startups have emerged, half of them in defense tech." Shinar pointed out that two of the biggest Israeli companies currently traded on Wall Street, Wix and SolarEdge, were both founded in 2006 following the Second Lebanon War.

"It may be that 1,600 new startups a year, as it was at the peak, is excessive, but in 2024, we all have to make an effort to reignite the industry. We at NFX have decided to allocate a few million in favor of the establishment of new companies with entrepreneurs who are serving in the IDF reserves," Levy-Weiss added.

Agmon from Insight shared Levy-Weiss's feeling that Israeli startups aren’t prominent enough in Generative AI, unlike cybersecurity, for example. "I am very worried about it, but if there is something very Israeli, it is Israeli resilience. When you ask Jeff Horing (founder of Insight Partners) what’s unique about Israeli high-tech, he always says it is resilience."

At the event, Asaf Horesh, General Partner at Vintage Investment Partners, presented a comprehensive report summarizing the performance of funds and startups over a challenging year. According to the findings, there has been a significant decline in the scale of VC fundraising, with only 10 new funds raising a total of $1.4 billion in the first three quarters of 2023. In contrast, 51 funds raised an aggregate amount of $4.5 billion in 2022.

Fundraising volumes have stabilized following the decline, with $500 million raised during the first quarter of 2023. Subsequently, $400 million was raised in the second quarter, and another $500 million in the third quarter. In comparison, 2022 saw fundraising totaling $2 billion in the first quarter, $1.3 billion in the second quarter, $700 million in the third quarter, and $500 million in the fourth quarter.

Consequently, the number of investments in Israeli startups has dwindled to 319 transactions, totaling $5.4 billion, in contrast to the robust figures of 694 transactions amounting to $15.7 billion in 2022. There has been a 60% decline in recruitment volumes during the first three quarters of this year compared to the corresponding period last year. In contrast, the U.S. market experienced a 40% decrease from the previous year.

The exit market and public offering scene in Israel remain stagnant, mirroring trends in the U.S. and Europe. In contrast, the mergers and acquisitions market in Israel has undergone a remarkable acceleration since hitting a low point in the second quarter of 2022. In the first three quarters of 2023, 27 transactions totaling $4 billion were announced, excluding transactions from the last quarter. The distribution included approximately $1 billion in the first quarter (a 260% increase in transaction value from the last quarter in 2022), $665 million in the second quarter, and $1.4 billion in the third quarter. In comparison, there were 27 mergers and acquisitions in 2022, totaling $3.7 billion. Remarkably, around 70% of all purchases in 2023 were in the cyber industry due to consolidation.