What loans did Armis and Tipalti take and who else is borrowing?

Hercules Capital, the U.S. startup-debt giant, is significantly expanding its presence in Israel. Calcalist has learned that the company has appointed Ella Adhanan to lead a new Israeli operation it is establishing in the local market. Over the past two and a half years, since the collapse of Silicon Valley Bank (SVB), which had held a near-monopoly on startup lending in Israel, Hercules has carried out a number of transactions in the country. But following the end of the war and renewed growth among local tech companies, Hercules has decided to double down on its activity in Israel.

In the past two years, Hercules has invested roughly $1 billion in Israel through a series of transactions ranging from $15 million to $200 million per company. By 2026, the firm plans to double the pace and deploy $1 billion in credit to Israeli companies per year. Initially, Adhanan will continue managing Israeli transactions from Hercules’ New York offices, but she is expected to establish a physical operation in Israel later on.

Ella Adhanan (left) and Hercules CEO Scott Bluestein.

Adhanan, 36, is leaving SVB’s successor organization. Since SVB’s collapse, she has been working at First Citizens Bank (FCB), which acquired SVB’s U.S. operations. She is already a well-known figure among Israeli tech executives.

Hercules’ move into full-scale activity in Israel’s high-tech debt market is expected to reignite competition with veteran players, including BlackRock-owned Kreos, HSBC, which acquired SVB’s European operations, and Viola Credit, which recently announced a $2 billion raise for a new fund focused on fintech companies, not all of them Israeli. They join the credit arms of Israel’s major banks, all of which are actively courting entrepreneurs.

Hercules typically provides far larger credit volumes than banks, targeting substantial deals in relatively mature companies. But unlike banks, it does not maintain long-term banking relationships with founders and executives, who usually hold mortgages, private-banking services, and corporate accounts at local institutions. Hercules relies instead on its ties with venture capital funds, which bring it in as a complementary financing partner, especially in large growth-stage rounds. Traded on the NYSE with a market cap of $3 billion, Hercules is considered the largest non-bank player in the field. Founded 21 years ago in Silicon Valley, it employs 120 people and recently crossed $25 billion in total credit provided across 700 transactions. The firm raises money from institutional investors and extends loans at relatively high interest rates, offering a non-dilutive alternative for founders of late-stage companies.

In the past two years, Hercules has participated in major funding rounds for some of Israel’s best-known tech companies, including Armis, Tipalti, Earnix and Semperis, as well as Carbyne, which was sold this month for $625 million.

Hercules is the only player in the Israeli market that publishes financial reports dedicated solely to its lending activity, offering a rare glimpse into a sector that has long been opaque. Startups traditionally avoid disclosing that they have taken out debt, let alone at what interest rate. As of the end of the third quarter, Hercules’ largest Israeli borrower is cybersecurity company Armis, with several loans totaling $150 million. Tipalti holds $114 million in Hercules credit. Both companies may have taken out additional loans with other firms. Other companies have taken smaller sums: Earnix with roughly $20 million, Semperis with a similar amount, and Sisense, a veteran unicorn that has faced turbulence in recent years, borrowed over $30 million to avoid raising capital at a depressed valuation. All loans are issued as senior secured debt, meaning Hercules is the first creditor in line, with collateral typically in intellectual property, inventory, or receivables.

“We don’t replace equity, we work alongside it,” Hercules CEO Scott Bluestein told Calcalist. “Our checks range from $10 million to $300 million, as in one recent Israeli deal. We work with all the major funds, Andreessen Horowitz, Accel, Insight, Lightspeed, Bessemer, to add a non-dilutive layer to growth-stage fundraising. We also move quickly: because we raise money in advance from institutional investors, we can provide large sums within 24 hours.”

The practice of financing startups with debt, known as venture lending, differs from traditional bank lending. Firms like Hercules focus less on collateral and more on growth prospects. Hercules provides financing even to companies with negative cash flow, without covenants and without requiring profitability. In addition to charging relatively high interest rates, the firm typically receives upside through warrants. The average interest rate is about 12% on four-year loans.

Bluestein, who has led Hercules for six years, said he sees in Israel a trend long underway in the U.S. “The Israeli ecosystem is beginning to close the gap with the U.S., and there’s a growing understanding that startup financing doesn’t have to come only from equity or bank debt. It’s true that Viola and Kreos have been operating in Israel for years, but they still make up a small share of total funding. The collapse of SVB in March 2023 and the severe slowdown it triggered in Israel’s credit market made us realize we needed to act. We made the decision the day after SVB fell, and we have been very aggressive in Israel. By our calculations, over the past two years we’ve become the most active non-bank lender in the country. The fact that these were war years underscores the importance we attach to operating here, especially compared to many entities, banking and non-banking, that became more hesitant about Israel.”

In recent years, founders have become increasingly interested in raising debt alongside equity, partly because the road to a Wall Street IPO has lengthened. Investors now expect at least $350 million in annual revenue. Many Israeli unicorns are already conducting ninth or tenth private rounds, unprecedented numbers, creating significant dilution for founders. Armis, for example, completed its ninth funding round this month. Levels of valuation compression since the 2021 bubble mean that dilution often occurs at valuations similar to those of five years ago.

“We don’t want to lend to companies that cannot raise equity,” Bluestein said. “Every company we’ve backed, from Armis and Tipalti to Semperis and Akeyless, could raise capital tomorrow, but it wouldn’t be the right time. They’re entering new markets and growing 30% to 40% a year. It’s better for them to take $50 million or $200 million from us in non-dilutive financing and raise equity next year, at double the valuation. Entrepreneurs don’t like selling shares cheaply.”

One of the challenges in the Israeli venture-debt market is the historic stigma attached to borrowing, many founders still believe that only companies unable to raise equity resort to credit. As a result, startups that borrow from Hercules or its competitors tend to conceal it. Bluestein rejects that view. “In the U.S., it’s completely normal, it’s part of the conversation between management and investors. In Israel, it’s only now beginning to change. Five years ago, startups treated debt as a last resort, but the perception has shifted. There’s still a gap, 60% of U.S. private tech companies have debt, while the numbers in Israel are much lower. But Israeli companies actually need debt more, because they need to finance their entry into the American market. In the U.S., private tech companies finance acquisitions with debt, not equity.”

For Adhanan, Hercules’ new Israel director, the road ahead is long: she must compete with entrenched players and reshape the local industry’s perception of venture lending, an uphill task in a market where cyber and AI startups are seen as flooded with venture capital interest, and credit remains, at least publicly, the tool of the less glamorous.