At the end of September, venture capital firm NFX announced a change to its operating model. It will cease raising new capital from external investors, foreign investment institutions and US funds, and will instead focus on managing its existing portfolio.
Once the firm has fully allocated the capital raised from its investors, the partners will begin investing from their own personal funds and issuing smaller checks. No more massive investments of tens of millions of dollars in a company; instead, small, personal investments-ranging from $100,000 to $3 million, without taking a seat on the board of directors or leading funding rounds.
Among the founders of NFX is Israeli venture capitalist Gigi Levy-Weiss, the first investor in major companies such as Playtika and Sunflower, and the former CEO of 888. In a blog post on the firm’s website, the partners explained that they had revisited a question that first arose in 2017, and come to a different conclusion: " Given that AI is changing how startups are built, and thus how the whole VC ecosystem is going to work, the question of whether to self-fund came up again. Do we really need a large fund to have the same impact and keep doing what we love? The world has changed. We’ve changed."
It is not just the investment approach that will change; NFX’s own structure will become leaner, incorporating greater use of AI tools for identifying and managing investments. Staff members have already been informed that they will need to find new employment, while several partners and investment managers are currently working on raising their own funds or interviewing for new positions.
NFX draws inspiration from a move made in 2022 by US firm Homebrew, whose partners decided to stop raising external capital and shift to investing their own funds. In Israel, veteran firm 83North, led by Arnon Dinur, Gil Goren, Yoram Snir, and Laurel Bowden, has taken a similar path.
The talk of the market
The decision by Levy-Weiss and his partners has become the talk of the local venture capital market. Many of the partners view this move as an obvious, and even enviable step, firstly because the partners, among them former Meta executive Stan Chudnovsky, are able to invest significant sums from their own pockets, and secondly because of the ability to bypass traditional venture capital investors, known as limited Partners, mostly investment institutions and private equity funds seeking higher returns through access to technology companies.
"The limited partners and institutional investors are disappointed with the returns generated by most established venture capital funds in Israel, and in general by most small-to-mid-sized funds globally. Consequently, they are concentrating the bulk of their capital in massive Silicon Valley-based funds, which are capable of capturing Israeli 'unicorns' at any stage of their development," says a senior Israeli venture capital executive, who requested anonymity.
"Here and there, you find funds run by young, well-connected investors who can demonstrate access to the major funds, such as Omri Casspi’s firm in Israel or Quiet Capital in the US. There are also specialized funds that manage to provide added value, like Gili Raanan’s Cyberstarts.
"If an established venture capital fund cannot demonstrate connections to the major US firms, and fails to deliver a return of at least 30% on paper, it will not attract investors, who can instead invest in private equity funds that offer returns ranging between 17% and 20% with significantly lower risk," says the source.
A bleak fundraising picture
According to a study published by research firm IVC in collaboration with the Israel Innovation Authority, the landscape for venture capital fundraising in Israel appears particularly bleak: Israeli funds collectively raised only $630 million in the first half of this year. This is a low figure, putting the annual total on track to reach only half of the capital raised last year ($2.5 billion) even though Israel was at war during that period.
Since the study’s publication, the total capital raised by Israeli funds has risen to $1.4 billion. IVC projects a year-end total of approximately $2 billion, a level not seen since 2024, which was also a year of war, or 2016. This is at a time when Israel’s technology sector requires much more capital to invest in costly AI ventures, which demand substantial hardware resources. This figure is 70% lower than the peak reached in 2021.
Industry insiders now believe that more Israeli VC firms are likely to withdraw from fundraising efforts, and to switch to a more independent operational model, or simply exit the market altogether.
"Most of the Israeli funds are facing a problem," says a partner at one of the funds. "The giant US funds-Sequoia, Andreessen Horowitz, Lightspeed, Bessemer, Atreides, and the like-are finding their way to the most sought-after Israeli entrepreneurs. They are the ones leading the major funding rounds, and Israeli entrepreneurs are flocking to them. There are very few high-quality companies. They are typically founded by experienced entrepreneurs who say to themselves: ‘I’m being courted by an American fund anyway, so I have little need for an Israeli fund here.’"
One need only look at the dominance of massive American funds among Israeli unicorns. The funds that reaped the lion's share of the return from the $32 billion sale of Wiz to Google are primarily foreign: Index, Sequoia, Insight, Thrive, and Andreessen Horowitz. The only Israeli player at the table was Cyberstarts, led by Gili Raanan-who was formerly with Sequoia.
Among the investors in promising unicorns such as Cyera ($12 billion valuation), Decart (currently being acquired by Amazon for $7 billion), or EON ($4 billion) one mostly finds firms like Sequoia, Benchmark, and Lightspeed. Israeli involvement appears either through affiliated funds that partner with these foreign entities, such as Omri Casspi’s Swish, or through Israel-linked investors based abroad, such as Oren Zeev’s Zeev Ventures. Even Kela, a defense company that works primarily with the Israeli military, raised capital first and foremost from funds such as Sequoia, Lux, and Stripes.
The high level of access that Israeli entrepreneurs enjoy to US funds is illustrated by a "Globes" report from last month that a cybersecurity company not yet officially established, but set to be founded by a senior commander from a technological military unit (currently on demobilization leave) and serial entrepreneur Idan Nurick has already secured Sequoia Capital to lead its initial funding round, with Omri Casspi also joining the investment.
Investment conservatism
One criticism leveled at the traditional Israeli venture capital industry is over its conservative approach to investment in AI and deep tech. "The partners at these funds thrived during the heyday of ad-tech, online services, cloud computing, enterprise software, and cybersecurity companies. They lack expertise in deep tech, semiconductors, and hardware, areas in which companies are becoming increasingly sought-after in the age of AI," notes a senior industry figure. "The cybersecurity sector accounts for 40% of the capital, yet the bulk of this comes from US funds or Cyberstarts, founded by ex-Sequoia people. Many in the Israeli industry are looking to change operational models, or are even looking for work outside the industry entirely.
"The uncertainty over the future shape of the market is so profound that investment strategies have gravitated toward safer bets: massive capital injections into a very small number of companies, controlled by a tight-knit group of entrepreneurs and investors."
Part of the decline in Israeli investment stems from within the local market: Israeli investment institutions have scaled back their investments in venture capital funds, and their direct investments in Israeli companies, because of the lackluster returns generated by most of the local funds. Instead, many are seeking access to the high-profile deals being closed in the US. In May of this year, Clal and Migdal invested $170 million in a private funding round for Anthropic, and at least one Israeli institution participated in a massive funding round for its competitor, Cognition, alongside Omri Casspi.
In its early days, the government launched an initiative designed to help Israeli investment institutions allocate capital to local funds, but the program failed to gain traction. Israeli investors complain that high-quality funds that don’t need capital from Israeli institutions are actively courted by them, while funds that do need such support, and openly declare this to investment institutions, create a negative impression, as though the need for assistance is a mark of Cain.
Published by Globes, Israel business news - en.globes.co.il - on October 15, 2026.
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