"The ingenuity and persistence of Israeli entrepreneurs are reasons to remain optimistic and bullish"

“In times of uncertainty and great challenges, it is always crucial to maintain a high level of communication and transparency with both founders and investors,” said Shuly Galili, Co-Founding Partner at UpWest. “We initiated many opportunities to offer LPs a perspective on our portfolio and how they navigate the current environment, resulting in them being highly supportive and engaged in the long-term success of the fund.”

As Israel suffers multiple challenges, from local judicial reforms to wars in the Middle East, Startup Nation must reaffirm a healthy relationship with investors and founders overseas. For UpWest, that means doubling down on communication efforts.

Shuli Upwest

“We maintain very open lines of communication with our portfolio founders and continue to discuss the impact on each company as well as how we can best support each team. Given that many of our founders are based in the U.S., the circumstances impact each individual startup differently,” she added.

VC fund ID
Name of the fund: UpWest
Total assets: $100m
Leading partners: Shuly Galili, Gil Ben-Artzy
Latest investments in Israel: Rotate, Raven, PerfectScale, Livble, with many more still in stealth.
Selected portfolio companies: SentinelOne, HoneyBook, Stampli, Imubit, CyCognito, BeeHero, CyberX, Balance.

From your perspective, was 2023 a ‘lost year’, or can the events that happened during it be seen as a springboard for opportunities in 2024?

2023 was a pivotal year while the economy continued to reset. As we emerged from the pandemic and its impact, 2023 was essentially a year of adjustment to the new reality of a global recession, high interest rates, and political and regional instability. At the same time, we have witnessed the rise of Generative AI, an emerging technology that has the potential to transform many areas of our lives. This has ignited a renewed energy in the startup economy worldwide and is forcing many traditional companies to re-evaluate product offerings. We see this as a springboard to many new opportunities in 2024 and beyond. From an investment perspective, 2023 was not a “lost year” by any means. We are excited about the deals we made last year – though we can’t share much more as most of the companies are currently in stealth.

What do you believe is more crucial to the state of Israeli tech: the influence of global processes and the global economy, or the local events ranging from the political protest to the war state?

Israel was never an island, and its success in tech has always been reliant on the global economy. With the lack of a meaningful local market, most tech companies in Israel have no choice but to sell their products globally and mostly to U.S. customers. Equally, Israel’s tech sector relies heavily on the infusion of foreign investments. Trends in global economic sentiment are a major influencer on how we recover from downturns and build a bulletproof technology sector. Over the years, Israel proved itself as a powerhouse of tech innovation especially due to its favorable local conditions for global tech giants, governmental incentives to invest in local R&D, and attractiveness to global investors. However, as we know, political and security instability can temporarily drive Israel to the bottom of the barrel in the eyes of tech buyers and investors. In our perspective, both external and internal conditions are crucial for Israel’s tech leadership.

Has the prestige of Israeli high-tech been damaged, or are the protests and the war merely a 'small bump in the road' from which the sector can recover within months?

We are steadfast believers in the foundations that make Israel a tech leader. The ingenuity and persistence of Israeli entrepreneurs are reasons to remain optimistic and bullish as investors in this market. However, we do fear that in the long term certain events such as the potential judicial reform and regional conflict will impact the strength of the tech sector. The longer the political and security instability lasts, the more damage we will have. The real concern is in maintaining Israel’s edge in homegrown tech talent. The prevention of a brain drain is crucial. Moreover, the diversion of government budgets from R&D, science and education to other areas such as defense and less productive sectors is concerning in the long run.

How much effort was required of you to maintain the fund's status with your investors in 2023? What were their primary concerns and how did you address them?

In times of uncertainty and great challenges, it is always crucial to maintain a high level of communication and transparency with both founders and investors. We initiated many opportunities to offer LPs a perspective on our portfolio and how they navigate the current environment, resulting in them being highly supportive and engaged in the long-term success of the fund.

How are you preparing for the most pessimistic scenarios, such as the continuation of the war in Gaza deep into 2024, the opening of another front in the north, or further reduction of government support for high-tech?

We maintain very open lines of communication with our portfolio founders and continue to discuss the impact on each company as well as how we can best support each team. Given that many of our founders are based in the U.S., the circumstances impact each individual startup differently.

Did you raise fund money in 2023 for an existing fund or a new one? What are your expectations regarding this matter for 2024?

We are very fortunate to have a wide base of LP support. We announced our $70M UpWest IV in 2021 and plan to continue and deploy this fund throughout 2024.

How many investments did you make in 2023, and how does it compare to 2022?

We typically invest in 4-7 pre-Seed and Seed stage companies each year, which was kept consistent in each year between 2021 and 2023.

In your view, will the amounts and/or the number of deals in 2024 be more like those of 2023 or 2021-22?

Overall, if we look at the industry at large, we have seen a major slowdown in capital deployment in 2023 and believe that it will continue to be that way in 2024. For UpWest, as a First Check investor leading pre-Seed and Seed rounds, we have been pretty consistent in how we invest throughout 2021-2023 and therefore we don’t anticipate a change in our investment pace in 2024.

Which high-tech sectors will you focus on in the upcoming year? Which areas will maintain their prominence, and which ones appear less attractive?

As a generalist fund, we have always aimed to invest across industries and domains that are either emerging or already critical to the U.S. market. We prefer to let founders dictate which areas are the most ripe for disruption, as we invest in entrepreneurs who are experts in either a specific industry or tech discipline.

Which type of companies stand a better chance of garnering increased attention from VC funds this year - early-stage or advanced rounds?

In the early stages where we invest it is critical to stand out with a solution and vision that is both innovative and differentiated, though that is not necessarily enough in today’s market; startups with proven paths to revenues and strong go-to-market understanding in their sector will be more attractive in current market conditions. While later stages rounds saw a steep decline since 2022, Seed and pre-Seed rounds kept a relatively strong momentum and we anticipate that it will continue in 2024.

What changes will you implement in your approach to evaluating investments in startups in the coming year, compared to the previous two years? What practices will you abandon, and what criteria will you now demand from founders?

We have always been disciplined and maintained a long-term outlook. As such, our investment criteria have not changed. What we look for above all else are agile founders who have a big vision and are attacking meaningful problems in large markets.

Do you think it is likely we will witness encouraging IPOs, the emergence of unicorns, or remarkable exits in 2024?

Absolutely, though we do not expect a full market rebound within the next 24 months. What we expect to see are IPOs and up-rounds being led by strong, healthy fundamentals rather than hype. We anticipate M&A across industries as market consolidation continues, in cybersecurity in particular, though we expect to see more market leaders across sectors buying smaller startups that can easily be integrated into existing products. The old adage of “build vs buy” no longer only means building in-house vs buying a product subscription; it now extends to include buying the product itself to skip R&D cycles.

Provide an example of an intriguing investment you made in 2023. What sets this company apart, or what is distinctive about its sector?

We’re very excited to back Rotate, a 360° cybersecurity platform for SMBs in the U.S. to secure their businesses against threats and make themselves ready and compliant for cyber insurance. With a growing rate of cyber attacks against SMBs driven by increasing attack vectors and the proliferation of generative AI-led attacks, the need is stronger than ever. Founders Ro’ee Margalit and Avidan Barak have a uniquely qualified background and vision to tackle this emerging market. Rotate has offices in Palo Alto and Tel Aviv.

Practical and current tips for founders planning upcoming money-raising efforts - focus on the current market environment and sentiments.

With money being scarce across all investment stages, founders need to optimize their time and maximize the likelihood of success when raising a new round of financing. First, this means that they need to be completely buttoned up, and hit their main KPIs before initiating any new fundraising processes. Unlike a couple of years ago, investors will not be “rounding up” the key metrics; rather, they will look long and hard into any company they potentially invest in. Therefore, founders need to have meaningful market proof points, an extensive deck, and any spreadsheets or appendix slides that can address potential investor questions.

Second, founders should not reach out to every investor they know right at the onset but rather try to meet with only a handful of investors to verify that the story resonates and that there’s real interest from most investors to proceed in the process. Only once that happens, founders should reach out to all other investors and aim to create momentum around their fundraising round.

Name two portfolio companies that you think will thrive in 2024:

Stampli
Sector + description of the product/service: Stampli develops an AI-powered accounts payable automation platform centering all AP, communication, payments and documentation in one place.
Investment amount + total: Recent round of $61M brings the total investment in the company to $148M.
Founders + year of establishment: Launched in 2015 by brothers Eyal and Ofer Feldman, the company employs 300 people in Mountain View, Nashville, and Tel Aviv.

Reasoning why this is their year:
Stampli is one of the fastest-growing providers of accounts payable automation and ePayment services. In August 2023 alone, Stampli processed more than 1 million invoices totaling a collective value of more than $5 billion. Stampli's over 1,300 customers trust its AI with invoice capture, expense allocation, approval routing, fraud detection, and more. The founders built not only a powerful product that customers love, but a robust go-to-market team with momentum that has made the company a category leader.

Zenity
Sector + description of the product/service: Cybersecurity Zenity, the first and only security governance platform for low-code/no-code and AI applications, creates a win-win environment where IT and information security can give business and pro developers the freedom and independence they want to continue pushing their business forward while retaining full visibility and control.
Investment amount + total: Recent Series A of $16.5M brings the total raised to $21.5M
Founders + year of establishment: Ben Kliger (CEO) and Michael Bargury (CTO) Zenity was founded in 2021.

Reasoning why this is their year:
With its recent Series A round, Zenity built further momentum with the opening of its US Office. This positions the company to double down on its momentum in its market. Furthermore, earlier this year Zenity became the first company to support Microsoft Copilot Studio, thus allowing enterprises to securely empower their business users to build their own Generative AI Copilots.