“Every time there is a tech bubble, the need for domestic VC funds is questioned. Whenever a tech bubble bursts, the answer is clear. Without domestic funding, neither global funding can operate in this market,” said Boaz Dinte, managing partner and co-founder of Kumra Capital, on the project “Where do we go from here? ?” told CTech. Explore how the Israeli VC industry is coping with the crisis in this sector.
Dinte stressed that the Israeli sector cannot continue from where the crisis began because the situation has changed so much. Capital providers have retreated to their home base and will require a great deal of persuasion to resume investment activity in the market.
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Boaz Dinte.
(Cumra Capital)
Over the past few months, we have witnessed one of the deepest crises in Israel’s high-tech industry in decades. A global economic slowdown on the one hand and local political turmoil that has plunged the industry into a deep recession on the other. With the general assumption that things won’t change in the near future, the question that lingers in the industry is what can be done to minimize the damage to Israel’s tech industry, and when the crisis has passed. It’s about how you should act sometimes. Everyone involved can make the leap. So, as part of this ongoing project, we spoke with senior executives in the local venture capital industry to help Israeli tech companies justify their reputation for being creative, adaptable and creative. I tried to understand from them what I need to do now for Innovative, agile, and cunning.
Fund name: Cumra Capital
partner: Erez Shachar (Managing Partner), Boaz Dinte (Managing Partner), Sivan Shamri Dahan (Managing Partner), Sharon Barzik Cohen (Partner and CFO).
Notable/Selected Portfolio Companies: Frogg, Fiverr, AppsFlyer, Riskified, Simply, Augury, MinuteMedia, At-Bay, Aquant, Ermetic, Tytocare, ConnectTeam, Datarails
“The situation has changed so much that the Israeli sector will not be able to continue from the point of crisis.”
How long do you think the global economic slowdown will last? Do you think it’s bottomed out yet?
“In Hebrew, we say ‘prophecy is given to fools,’ but I dare say we have hit rock bottom. Markets began to stabilize and rebound slightly as the combination became more correlated, with the Nasdaq showing a strong rebound from the start of the year and the SaaS company index, which was revised down significantly in 2022, also rebounding from the start of the year. Given the current levels of interest rates and 10-year Treasury yields, the median SaaS valuation looks too downwardly revised, but is now long-term. As a veteran investor who has experienced multiple economic downturns, I don’t expect the market to bounce back to all-time highs any time soon. We may never reach it.”
When the local crisis ends, will the Israeli sector continue from where the crisis began (e.g. January 2023), or will there be a setback such that time and energy will need to be invested to get back to the same point? Was there?
“The situation has changed so much that the Israeli sector will not be able to continue from the point of the crisis. The high-tech industry remains inherently attractive, but investor confidence in the country’s governance has been shattered.The combination of a global economic downturn and domestic rebellion has had a severe impact on Israel’s high-tech industry. Even if judicial reforms are implemented, investor confidence may never be restored.”
Is the fact that large international funds generally slowing their investment pace benefit local Israeli funds and the local ecosystem?
“In general, I am competitive and love competition. We operate in a market where funds cooperate for global funds bring a unique perspective to a company, which is critical to a company’s success and thus the combination of domestic and international funds makes for a winning team. Every time there is a tech bubble, the need for domestic VC funds is questioned.Every time a tech bubble bursts, the answer is clear: domestic funds that focus on the domestic market are crucial to the industry’s survival. Without domestic funding, global funding cannot operate in this market.”
Do you support the popular assumption that AI can save the industry from its current crisis?
“The generative AI revolution has the potential to be more transformative than at least the smartphone and cloud revolutions. , cost savings, decision-making, etc. This technology is getting venture capital attention and I think we are getting to a point where we understand its disruptive impact, but the US We’re already seeing a lot of spending in this area, and I fully believe this is an engine of significant growth innovation that can pull the industry back in. Get into gear.”
Is there a bright side to this crisis?
“Today, it is clear that we were operating in an irrational environment in 2019-2021. The easy availability of cash has made it easier for companies to raise capital, resulting in some industries creating duplicate companies with overlapping products, use cases, and customers. Most companies will tighten their grip, but founders and boards will wonder how long their companies will survive, and whether they expect independent businesses to survive after a 24-month runway. Ask yourself: Other companies are doing similar calculations, and some may want to start preparing for acquisitions now.At least 20% of these companies I believe it will not survive.”
How can this interim period (until the crisis passes) be used to better prepare for when the re-awakening arrives?
“We are constantly looking at new sectors that have reached maturity and are ripe for late-stage funding. Right now there aren’t many growth stage opportunities yet, but a new area that seems to have a lot of interesting early stage startups is foodtech and agritech. Our focus is on getting to know the founders of such companies in depth in stages and building relationships when the time is right.”
What are the critical areas where the Israeli venture capital industry has been hit?
“The decline in Israeli investment was more pronounced both in absolute numbers and compared to the decline in U.S. investment, as the Israeli bubble was larger. As a result, capital injections have peaked.Valuations like this make it very difficult for investors to exit while demonstrating a return on investment.MNCs are tempted to buy Israeli innovations as a result of judicial reforms. We expect this to have a negative impact on interest in business and commercialization, and technology companies report difficulty acquiring new customers.”
