A new report by Fusion VC surveying Israeli startups found that of the 900 new companies that were founded in Israel in 2023, 80% were incorporated in the US in Delaware, among other things because of the political and security instability in the country over the past year.
The study, which surveyed investments in pre-seed rounds in 2023 and 2024 so far, found that since the outbreak of the war, 56% of the leading angels in Israel, (private investors), and 55% of investment funds covered in the report, halted pre-seed investments in the last quarter of 2023.
Pre-seed investments in startups are the first amount invested in entrepreneurs, defined by Fusion as investments that reach no more than $1.5 million.
The report, reviewed data about the initial investments in startups by 54 active angel investors who shared information on 190 deals, and 31 funds specializing in investments in seed and pre-seed rounds that shared information on 110 deals. This is in addition to the data collected by Fusion, which recorded the activities of more than 900 Israeli entrepreneurs in the pre-seed stage.
Fusion investment team associate Amit Shechter, who led the writing of the report told "Globes" that pre-seed deals are challenging deals to measure and document, among other things because they are small-scale investments that often go under the radar and are not reported to the media and research organizations.
The report found that not only the number of deals declined, but also the amounts raised in the deals. Fusion found that 57% of angel investments last year were under $100,000 per deal, and 35% of angels invested less than $5,000 per deal. The report also found that 65% of the angels did not invest in more than two startups over the past year and 45% of the funds invested in two to four startups over the past year.
"Recommending that companies remain lean"
The report found that as in the US about 80% of deals were carried out using the SAFE (simple agreement for future equity) investment mechanism, with the company's valuation being set at a later stage.
Shechter told "Globes" "Our main conclusion from the report is that we advise entrepreneurs to go and raise the first round in "smaller amounts" from strategic investors and build the company in a healthier way. A few years ago, companies would define their fund raising as a cash cow when they already had 10 or 15 employees and the company was spreading resources extensively. We recommend that companies remain very lean, with two to three founders and a limited number of developers, and that this group work to produce an initial proof of feasibility."
Fusion VC was founded in 2017 by Guy Katsovich and Yair Vardi and has since invested in 110 startups in 13 cohorts including Agora, Hoopo, Innplay Labs, Base.ai, and DigitalOwl.
Published by Globes, Israel business news - en.globes.co.il - on March 7, 2024.
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