Growth fund Qumra Capital, an Israeli venture focused on high-tech companies at the mature stage, has raised $275 million for its fourth fund, "Globes" has learned. Despite the slowdown in the industry and the global decline in returns attributed to venture capital funds investing in equity in startup companies, Qumra has managed to raise its largest fund so far in one of the most challenging period for high-tech investors. The rise in interest rates has led to a severe crisis in the venture capital industry, as it has to compete with other investment assets with higher returns.
Nevertheless, the amount raised is less than the firm’s $300 million target for the fund, but it hopes to raise the remainder by the end of the year, according to venture capital database PitchBook. Qumra has not yet made a first closing to enable it to start investing in new companies.
Venture capital industry sources believe that Qumra will be required to raise further cash in order to invest in growth companies, and that it will have to reach at least $350 million to be able to continue financing growth companies to the extent that it wants. Qumra refused to comment on the report.
Qumra’s previous fund, raised in 2020, was $268 million, and was invested in companies such as Rapid API, Connecteam, Aquant, and Ermetic. Its first two funds were invested in companies that went on to make IPOs, such as Fiverr, JFrog, Taboola, Talkspace, and Riskified.
Qumra is not an ordinary venture capital firm. Its partners are prominent activists in the high-tech industry’s protest against the government’s judicial overhaul legislation. One of the firm’s founding partners is Erez Shachar, who is seen by many as the founder of the high-tech protest movement as well. As early as the period of the coalition negotiations he initiated the "techies’ petition" which called on the newly formed government to refrain from legislation that would harm the legal system.
Some of those who signed that petition - Lemonade (NYSE: LMND) co-CEO Shai Wininger, Fiverr International (NYSE: FVRR) CEO Micha Kaufman, and cyber entrepreneur Shlomo Kramer - have become prominent in the protest leadership. Besides Shachar, the partners in Qumra Capital are Sivan Shamri Dahan, Boaz Dinte, and CFO
Sharon Barzik Cohen.
Qumra’s fourth fund is the largest of the Israeli funds raised so far this year. It was preceded by TLV Partners, led by Eitan Bek, Rona Segev, Shahar Tzafrir, and Adi Yarel Toledano, which announced the raising of a $259 million fund last month.
Another firm to have made a first closing of a new fund that it is raising is Viola Growth, which is estimated to have closed $250 million out of a target total of $400 million. Viola is thus the first large Israeli VC firm to have made a first closing of a new fund this year, and the new fund will shortly start to make investments in growth companies, even though it is still some way from its target total.
Cyber fund Glilot Capital Partners and Haim Shani and Moshe Lichtman’s Israel Growth Partners (IGP) are also reportedly close to making first closings of their new funds. Glilot is expected to close $100 million out of a target total of $200 million, while IGP is expected to close on $100-150 million out of $250 million. Pitango, one of Israel’s largest venture capital firms, seeks to raise over $400 million. It is estimated to have raised $150-200 million so far.
Venture capital firms, even those that have managed to raise funds, have found that raising money is taking longer, that investors are asking more pointed questions, and that some investors have quit in favor of other types of investment.
The money raising climate in the past year has been the worst that venture capital firms have known in decades. The declines on the stock markets in 2022, and the consequent halting of IPOs, and the decline in the technology giants’ appetite for acquisitions, depressed the return on venture capital funds to a low not seen in many years.
According to PitchBook, the venture capital firms achieved a 62% return in 2021. In 2022, their returns were a negative 17.6%, making them one of the worst investments out there.
"Even if venture capital funds raised money, it was less than they hoped for and took longer than they expected," a senior venture capitalist told "Globes".
"When a deposit in the US earns 5%, the venture capital industry dries up. Foreign financial institutions active in Israel invested a great deal in high-tech companies and venture capital funds in recent years, but today they find themselves over exposed to non-marketable assets, which forces them to reduce investment in the funds.
"In addition, the declines in valuations in high-tech companies are too recent a memory for the investment committees. Add to that the atmosphere created by the legal system legislation, which, even if it hasn’t advanced to the danger zone, is still generating a problematic atmosphere, and you get investors who are not prepared to invest in Israel, or who want to gain time. There are investors who have never been spoken to about politics before, and when it suddenly comes up, it surprises them"
For all that, this venture capitalist says "Because of herd behavior, most investors are fleeing, instead of realizing that high-tech is cyclical, and that particularly now, when companies are prepared to give investors good terms, and when company valuations are low, this is an excellent time to invest."
Published by Globes, Israel business news - en.globes.co.il - on August 22, 2023.
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