After finishing a second national lockdown, amidst weeks of protests against the government and with borders largely closed to foreigners, you could safely say that these are not ‘normal’ days for Israeli startups or the Israeli economy.
With that said, Israeli Venture Capital funding broke a new record in Q3 2020, according to an IVC report. In September alone, Israeli startups raised $1.2 billion. As a whole, it looks like Israel is headed for another record breaking year. In the first 3 quarters of 2020, Israeli startups raised $7.5 billion, close to the amount that was raised in the whole of 2019 ($7.9 billion) which was a record year.
Much of the growth in funding is attributed to later stage rounds (Next Insurance $250M, Snyk $200M, Gong.io $200, Redis Labs $100M, etc etc).
Is there a “Seed Crunch”?
The median seed round size dropped significantly, by 80% in Q3 2020, from approximately $1M in 2016-2019 levels, to $0.15M in Q3 2020 driven big a big drop in angels and VCs participating in early stage deals. While this can simply be the nature of lagging reporting on funding rounds that took place, the numbers show a reduction of 50% or so in the number of angel investors and VC funds took who invested in seed in Q1-Q3 2020 compared to 2018-2019
Anecdotally, we see a lot of activity in seed and pre-seed financing at Remagine Ventures, with sizeable deals closing very quickly. However, it’s clear that there’s potentially a sense of risk averseness to invest in a risky asset class in the middle of a pandemic and looming financial crisis.
There are other potential explanations:
- Large funding rounds grab the headlines and smaller rounds don’t get reported. In Israel, at least two startups Melio and Salto (coincidentally both Bessemer portfolio companies) chose to stay stealthy and reported multiple raises of $144M and $27M respectively) much after the fact.
- Lagging indicator – Seed is effectively being split to:
- Pre-seed rounds (typically in the form of a Safe note by angels or pre-seed funds) – these sort of rounds have become harder to raise as angels are less active. They also get very little publicity as they are often too small to report.
- Seed rounds raised by strong teams (usually serial founders) can be raised earlier and the rounds became larger ($4M-$15M) but don’t get reported right away as the founders prefer to wait with PR until the product is ready.
- Less companies are being created – according to startup nation central, 168 companies were founded so far in 2020, compared to 461 in 2019 (a 65% decline).
Silver linings
It’s good to remember that some of the most successful companies were started in recessions and the pandemic, with all of its negativity, has also created opportunities for startups, by accelerating digital adoption and changing consumer habits. Not to mention the availability of talent, the smart phone penetration and improved infrastructure which can accelerate things like cloud gaming or AR/VR. The cliche remains true – there’s never been a better time to START a company, but perhaps it’s also true that it’s getting harder to SCALE a company.
If you’re building a new startup at the intersection of tech, entertainment, data and commerce, we’d love to talk. There’s no time like the present to start.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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