“There’s definitely a decrease in the number of new startups but the quality of startups has increased”

"It appears that the recent rise in interest rates is starting to yield positive results in combating inflation, especially in the U.S. In addition, we're witnessing a modest increase in the amount of funding rounds as well as in valuations of both public and private companies,” says Nofar Amikam, General Partner at Glilot Capital Partners. “This indicates that we're moving in the right direction.”

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“Having said that”, adds Amikam in a special interview with CTech regarding the impact of the global financial slowdown on the VC sector, “the market isn’t likely to go back to the post-COVID days, it seems like a new and healthier equilibrium is taking place.”

Nofar Amikam, General Partner at Glilot Capital Partners.

Over recent months, we have witnessed one of the most serious crises to hit Israeli high-tech in recent decades: on the one hand, a global economic slowdown, and on the other hand, local political turmoil that sent the industry into deep stagnation. Since the general assumption is that the situation will not change in the near future, the question hovering over the industry is what can still be done to minimize the damage to the Israeli high-tech industry and how should we act so that when the crisis passes - all those involved can take a leap forward. Therefore, as part of this on-going project, we spoke with senior executives from the local venture capital industry to try and understand from them what needs to be done now to justify the reputation Israeli high-tech has earned as being creative, adaptive, innovative, agile and cunning.

Name of fund/funds: Glilot Capital Partners

Total sum of fund: $700M AUM

Partners: Kobi Samboursky, Arik Kleinstein, Lior Litwak, Nofar Amikam

Notable/select portfolio: Lightrun, upstream, Seemplicity, atBay, anecdotes, cyolo

“We're witnessing a modest increase in the amount of funding rounds as well as in valuations of both public and private companies”

Does the fact that major international funds have generally slowed down the pace of their investments play to the benefit of the local Israeli funds and to the benefit of the local ecosystem?

“International funds have slowed down their investments in Israel but investments still take place. In fact, a recent analysis conducted by LeumiTech and IVC shows that there is a moderate increase in the number of investments from foreign investors in the recent quarter.

“I believe that strong and efficient-driven teams are still able to raise funds, but since this is a tougher market, the founders should make sure they choose an investor who can truly and proactively support them along their journey, financially and business wise. This is precisely why we dedicate tremendous efforts to support our portfolio companies with a strong Value Creation program, a global network of potential customers, and deep pockets to support our companies and extend their runway.”

Do you see a significant decrease in the number of new startups in the sectors you cover?

“There’s definitely a decrease in the number of new startups but the quality of startups has increased. It seems that only exceptionally strong teams with a strong conviction around their vision are keen to take the risk nowadays, and from an investor’s perspective this is obviously a good thing.

“We are definitely seeing some differences between the various sectors – There are still many teams building innovative solutions for the ever evolving cybersecurity challenges as well as strong teams tackling the relatively new GenAI sector.”

In which of the stages will startups encounter greater difficulties in the coming months?

“I believe that later-stage rounds are more challenging to raise than Seed and A rounds nowadays. This is because major global late-stage investors have reduced their investment pace. Additionally, some companies have previously raised funds at excessively high valuations that are no longer justified. At Glilot, we have always maintained conservative portfolio valuations, and thankfully are less impacted by the rise and lows of the previous years.”

Which investment strategies or financial tools have entered your tool-kit of solutions? Are there any that are no longer suitable to offer to startups?

“We were always big believers in actively supporting our companies post-investment. In fact, we were the first to build a structured Value Creation methodology that provides our portfolio companies with fast and early access to their target market. This strategy has led us to win good investments but even more importantly, it has significantly increased the chances of our companies success. The Value Creation efforts have proven themselves in today’s challenging market more than ever before and we will continue to improve our capabilities of achieving Product-Market-Fit and bringing paying customers to our companies’ table.”

How should the venture capital industry conduct itself in the immediate and medium term?

“Now more than ever before, VCs should shy away from over inflated valuations of new and existing portfolio companies. This will increase odds of raising follow-up rounds and building healthy companies. In addition, I believe that all investors must proactively support their portfolio companies during these challenging times.

“At Glilot Capital, we apply a hands-on approach which has consistently delivered successful results, with 16 exits in a decade, including three this year despite the market slowdown. This validates the effectiveness of our hands-on-approach and underscores our commitment to identifying and nurturing promising ventures, especially during economic difficulties.

“In addition, investors should make sure that they have the financial ability to support their portfolio and extend their runway, if needed. Experienced founders understand that strong financial and business support from investors is critical to the company’s success.”

Are there positive sides to this crisis?

“As the famous Churchill saying goes “Never let a good crisis go to waste,” we do see positive sides to the current market condition. For example, it seems like the quality of companies has increased and the valuations and multiples make more sense. In addition, companies are more focused on efficiency and market traction, which is, in my opinion, the healthier way of building a successful company.”

What are the critical points in which the Israeli venture capital industry was hit - if at all?

“The macro economic situation has clearly impacted the Israeli tech ecosystem and due to the current government's public statements and its focus it is not bouncing back at the same pace as the U.S. market. We are still seeing many Israeli-based companies cutting their budget to extend the runway and raising at lower valuations than in previous rounds.”