“Israel’s venture capital and startup industry is headed for collapse,” says Zeev Holtzman, Partner at Giza Venture Capital, one of the top VC firms in Israel, said to Venture Capital Journal (via PEHub). Famously and strikingly, last year zero dollars in new venture funds were raised. This year things are looking up, with another big Israeli VC, Pitango, raising $350 million. But the picture is still dire.
Why is Israel, the “Startup Nation” with more Nasdaq-listed companies per capita than any other country, in such a funk?
One reason is that Israeli startups have often been specialised in sectors like security, semiconductors and networking equipment, which can be capital-intensive and that many feel are “played out” for startups.
Another reason is that, like everywhere else, venture firms got too big too fast with the dotcom bubble and so have been delivering poor returns for the past decade. When the lousy VC firms wind down it’s going to be felt more in tiny Israel than in Europe or the US.
There’s a bright light however: Israel seems to start to “get” the consumer internet. Facebook just bought a local startup for $70 million. Famously, MyAncestry is the fastest-growing genealogy site, crushing Silicon Valley and PayPal Mafia darling Geni. (Believe it or not, genealogy is a huge market online, so this is a big deal.)
The appeal of the consumer internet isn’t just that it’s sexy, it’s that it’s much more capital efficient than other sectors, and also seems to be where all the innovation is.
Saul Klein, usually thought to be Europe’s top VC and a big investor in MyAncestry, recently moved to Israel from London, which is a pretty bullish signal. We wouldn’t write off Israel just yet.
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