Two veteran investors who have been integral in the development of a new generation of Israeli startups are on a mission to reverse a trend in a country that has traditionally favored later-stage and enterprise-skewed venture capital. Benchmark’s Michael Eisenberg and Genesis Partners’ Eden Shochat are teaming up to create Aleph — a new fund that aims to bring some much-needed local, early-stage support to Israeli startups. TechCrunch hears that the VC’s first fund is nearly closed and is in the region of $120 million.
Given that the venture capital (and startup) landscape in Israel is at a potentially significant juncture — the most recent exit being Waze to Google for $1.1 billion — the founders want to strike while the iron is hot. And they’re setting the bar high: They want Aleph to become the go-to early-stage venture capital firm in Israel, our sources tell us.
Israel has a long, prolific history when it comes to supporting innovation in science and technology. Today, the percentage of its population working in science and tech — and the amount it spends on R&D (relative to its GDP) — is reportedly the highest of any country in the world. One can begin to see why Israel has become home to the R&D centers of over 250 multinationals, including Google, Oracle, Microsoft and IBM.
It also helps explain why Israeli tech has, traditionally, been known for its focus on hardcore technologies (like software and semiconductors, for example) and enterprise. Yet, in spite of the fact that local venture capital has favored deep-tech and later-stage investments, over the last few years, a new generation of consumer startups has begun to emerge. (And produce some big companies and exits — like addictive traffic app, Waze, which just sold to Google for $1.1 billion and website creation platform, Wix, which recently announced its intentions to go public.)
So far, Aleph has been very tight-lipped on the actual existence of the fund, and what its aims are going to be. Initial reports, which first surfaced in Israeli newspaper The Globes earlier this week, pegged the new fund at $100 million. Though the founders have declined to share details at this point, and Israeli publications have floated several different figures, we’ve now confirmed that the total is $140 million and that it is expected to close in the next few weeks. [Update: We heard differing reports on the total amount raised, from $100 to $150 million, reporting that the consensus from our sources was $120 million. We've since updated with the correct amount, which is $140 million. The headline, this paragraph and appearance of original figure in following paragraphs have been corrected.]
But why should you care about some Israeli venture capital fund — or the size of the fund, for that matter? Great question, reader. I like you.
For starters, this is a sign of how startup tides are beginning to change in Israel. The success of companies like Waze and Wix could be a signal to the country’s entrepreneurs that there’s opportunity in not just “consumerizing,” but in making “tech-focused” consumer plays — like, say, in applying intelligent, “Big Data” technologies to consumer-facing services. For example, Waze, while it is known for it’s fun, animated, cartoony interface, considers itself a Big Data company and is obsessed with building infrastructure that can allow it to crunch enormous amounts of realtime traffic and navigational data points, which it can then use to personalize its maps and optimize the turn-by-turn navigational experience.
Plus, the fact that Aleph is raising a $140 million-plus early-stage fund shows that it’s serious and gives it enough capital to begin making a difference in a relatively small tech ecosystem. It’s not clear yet how much Aleph will invest in its chosen startups, but if we can assume it will be investing somewhere between $5 million and $8 million in each deal, that means it will be making anywhere between 15 to 25 investments. There’s room in that part of the market in Israel, and at those amounts, Aleph can provide enough early-stage capital to potentially change the fate of Israeli startups that have been struggling to find access.
In comparison, Pitango Venture Capital, which Haaretz calls Israel’s biggest VC firm, has reportedly raised $150 million of a $250 million fund, which will be its sixth. Furthermore, Magma Venture Partners, which was one of two Israeli firms to invest in Waze, recently raised $100 million. Qumra Capital is also in the process of raising $100 million for its first fund, according to Haaretz.
But all in all, we hear that local funds are, by and large, having difficulty raising in the current climate, while, in comparison, Aleph has will already be in the same league with some of the country’s biggest funds. And, while the founders declined to share details or confirm any of the above (or below), we’ve also heard that the founders initially set out to raise $100 million, but extended the target to $140 million after finding plenty of interest. With its model, in combination with the current landscape and maturing startup economy, the founders think the timing is right for a new, dominant venture firm to emerge in the Israeli market.
It’s way too early to say either way, but the other important factor at play here for Israeli startups is how much experience both Eisenberg and Shochat bring to the table as investors (and entrepreneurs). Eisenberg has been a general partner at Benchmark Capital in Israel for over eight years and has served on the Board of Directors for companies like Answer.com and Shopping.com and currently sits on the board of directors at Gigya, Seeking Alpha, Clarizen, Conduit (whose last raise valued the company at $1.4 billion) and Wix. Shochat, on the other hand, has been a General Partner at Genesis for almost three years, but also has significant experience as an operator.
In that capacity, he is probably best known as the co-founder and chairman of Face.com, a facial recognition technology company that sold to Facebook for upwards of $60 million. He is also the co-founder of Aternity, has led investments in successful startups like Any.do, JoyTunes and Commerce Sciences and helped manage and lead “TheJunction,” a program created by Genesis to support early-stage entrepreneurs by offering co-working space and acting as a startup accelerator and alumni organization, a la 500 Startups.
Shochat reportedly left Genesis in April, and Eisenberg will be leaving his role at Benchmark. With their prior experience, sources tell us that Aleph’s goal is to dominate early-stage IT, cloud, Big Data and mobile investments in Israel, leveraging what they perceive to be a maturation of next-gen local entrepreneurs looking to build big, global (and even consumer-facing) companies. For them, standing out from the crowd will be about focusing on Series A investments, rapid decision-making, local support and being decidedly entrepreneur-friendly,
Not only that, but our sources indicate that, in spite of the fact that Eisenberg is leaving Benchmark to start Aleph, Benchmark is one of the new firm’s first investors. Not to overstate it, but if these reports are in fact true, it’s a notable vote of confidence from Benchmark and shows what they think of his track record.
Regardless, the emergence of Aleph is an auspicious sign for the Israeli startup ecosystem, giving entrepreneurs another critical lifeline during the early stages, and another indication of how much Israeli tech stands to benefit from the global attention following a string of high-profile exits, chief of which is, of course, the newly minted “GoogleWaze”. (Or Wazoogle, if you prefer.)
We’ve reached out to the founders and will update with their comments if and when they respond.