2024 VC Survey“Heavyweight tech companies operating in Israel are doubling down,” says Cardumen Capital
2024 VC Survey
“Heavyweight tech companies operating in Israel are doubling down,” says Cardumen Capital
Gonzalo Martinez de Azagra and Nimrod Brandt have joined CTech to share insights into the Israeli VC space.
“We will never know the real extent of the impact on Israel’s image of the war. The truth is that we do not think it is very valuable to ponder about it because we must continue in our path irrespective of this,” said Gonzalo Martínez de Azagra, Founder and General Partner, and Nimrod Brandt, Partner, at Cardumen Capital. The duo has joined CTech for its 2024 VC Survey to discuss Israel’s reputation as the war with Gaza continues.
“While there may be some institutions who have decided to pause their support to the Israeli ecosystem, Israeli high-tech reputation remains strong,” they continued. “The sector has demonstrated its unrivaled resilience and agility in the face of one of the hardest periods in Israel's history. The heavyweight tech companies operating in Israel are doubling down and have expanded their presence locally and have singled out further expansion plans.”
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Gonzalo Martínez de Azagra, Founder and General Partner, and Nimrod Brandt, Partner
(Photo: Cardumen Capital)
VC fund ID
Name of the fund: Cardumen Capital
Total assets: $250m
Leading partners: Gonzalo Martinez de Azagra, Igor de la Sota, Gil Gidron, Nimrod Brandt
Latest investments in Israel: Verax, Bananaz, Substrata, Tomato, and Alison
Selected portfolio companies: DoControl, IVIX, NeuReality, CoreTigo, Munch, Second Nature, Loops
From your perspective, was 2023 a ‘lost year’, or can the events that happened during it be seen as a springboard for opportunities in 2024?
While 2023 presented significant challenges, both globally due to rising interest rates and locally due to events in Israel, we would not characterize it as a 'lost year'.
In fact, we believe the combined effects of these challenges and the ongoing resilience of Israeli entrepreneurs will pave the way for the emergence of truly exceptional companies in 2024 and beyond. Our firm maintains its usual investment pace, backing seven new portfolio companies in 2023.
What do you believe is more crucial to the state of Israeli tech: the influence of global processes and the global economy, or the local events ranging from the political protest to the war state?
Israeli tech companies possess a unique strength: their resilience and adaptability. This allows them to navigate both the challenges presented by the global landscape and the complexities of the local environment. This adaptability is a testament to their ability to innovate and thrive even in a dynamic and ever-changing world. The silver lining of the current situation is that it has given people a purpose to commit to their business success. After all, this is another way to help Israel.
A combination of global processes and local events undeniably shapes the Israeli tech landscape. On the one hand, a thriving global economy empowers Israeli tech companies. Access to international investment fuels their growth and R&D potential. On the other hand, domestic stability fosters a conducive environment for innovation. Political and social stability provide a predictable and secure foundation for younger generations to be educated and businesses to operate and grow. We believe and hope that the extension of the Abraham Accords will lead to a significant boost for the Israeli ecosystem once the conflict is over and other countries in the region can subscribe to it.
Has the prestige of Israeli high-tech been damaged, or are the protests and the war merely a 'small bump in the road' from which the sector can recover within months?
We will never know the real extent of the impact on Israel’s image of the war. The truth is that we do not think it is very valuable to ponder about it because we must continue in our path irrespective of this.
While there may be some institutions who have decided to pause their support to the Israeli ecosystem, Israeli high-tech reputation remains strong. The sector has demonstrated its unrivaled resilience and agility in the face of one of the hardest periods in Israel's history. The heavyweight tech companies operating in Israel are doubling down and have expanded their presence locally and have singled out further expansion plans. The shekel strengthened vs. the US Dollar and the TA index of the TASE is trading above its pre-war levels.
We find ourselves in a period that will yield great opportunities and some of the best vintages in our generation.
How much effort was required of you to maintain the fund's status with your investors in 2023? What were their primary concerns and how did you address them?
Our LPs are primarily international institutional investors from Europe, Latin America, and the APAC region, who are well acquainted with Israel’s situation.
We strongly believe that as GPs we must practice radical transparency with our investors, providing extensive information on portfolio developments and our views on the status of the market. Overcommunication has been key in 2023 when referring to the tragedy of 7/10 and the wider adjustment in the tech sector.
Our investors’ biggest concerns have revolved around the current funding environment and its potential impact on our portfolio. However, as of today, we have been lucky to have strong teams that have been able to fundraise effectively.
How are you preparing for the most pessimistic scenarios, such as the continuation of the war in Gaza deep into 2024, the opening of another front in the north, or further reduction of government support for high-tech?
Our portfolio companies have prepared contingency plans in case another front opens up in the north.
Through our influence on the board of our portfolio companies, we have encouraged them to extend their runway and not take for granted funding despite any success achieved. Moreover, we are in the midst of raising an opportunity fund to take advantage of the huge success of our leading fund I portfolio companies. Our fund coupled with the capital available to our co-investors (Insight Partners, Scale Venture Partners, NFX, Team 8, Amazon, etc.) will catapult our companies to an even greater success.
Did you raise fund money in 2023 for an existing fund or a new one? What are your expectations regarding this matter for 2024?
Throughout 2023, we have raised effectively two different funds. We have raised $120M for our second Deep Tech Fund, which is currently deploying capital for Israeli entrepreneurs. Additionally, we were able to raise and perform a first closing in our AgriFoodTech fund which is also being deployed.
Although 2024 will be a challenging year for fundraising, we expect the second half of the year to pick up as allocations shift away from short-term deposits and treasury bills.
How many investments did you make in 2023, and how does it compare to 2022?
In 2023 we have doubled down on Israeli entrepreneurs and kept our deployment pace at seven deals per year in new companies plus additional follow-on rounds. This pace has been the same for the past three years.
In your view, will the amounts and/or the number of deals in 2024 be more like those of 2023 or 2021-22?
It will be closer to 2023 for several reasons. On the one hand, some crossover funds and corporations have decided to move out of the venture space after the adjustments in 2022. Moreover, a tighter BigTech employment market will discourage some entrepreneurs from taking risks in the short run. Finally, the conflict will put on pause many projects until the situation returns to normality.
Which high-tech sectors will you focus on in the upcoming year? Which areas will maintain their prominence, and which ones appear less attractive?
We believe the AI application layer will keep garnering a lot of attention from investors. Semiconductors and cybersecurity remain very attractive during the coming years. We will focus on the above.
On the flip side, companies with high capital requirements and long time-to-market outside of semiconductors will require extraordinary founders with excellent fundraising skills to cope with the storm.
Which type of companies stand a better chance of garnering increased attention from VC funds this year - early-stage or advanced rounds?
We still need to wait and see how the markets react to the expected decrease in interest rates later in the year. Nonetheless, we believe that in growth stages only a few large multi-stage funds will have success. We have the conviction that early-stage will remain the strongest segment in the market.
What changes will you implement in your approach to evaluating investments in startups in the coming year, compared to the previous two years? What practices will you abandon, and what criteria will you now demand from founders?
During 2024, we demand our founders to be very aware of the current funding environment and remain lean in their use of cash. We have raised our requirements in terms of traction and conviction for us to move forward.
We will remain very disciplined in terms of entry valuations and will only invest extraordinarily in founders who live in widely different geographies.
Do you think it is likely we will witness encouraging IPOs, the emergence of unicorns, or remarkable exits in 2024?
It is hard to say if 2024 will see a strong liquidity window. We remain vigilant about the behavior of public markets ahead of the anticipated rate cuts in May/June and the performance of long-awaited and rumored IPOs.
When it comes to M&A activity we are seeing a lot of movement from corporations and bankers in our network but, on the flipside, also have reservations regarding recent regulatory rulings against the completion of some large M&A transactions.
Provide an example of an intriguing investment you made in 2023. What sets this company apart, or what is distinctive about its sector?
An interesting example is Alison.ai, a groundbreaking approach to digital marketing creative design and optimization. Effectively, by analyzing video creatives Alison.ai can understand why certain videos are performing better than others. In fact, Alison can provide insights on how to improve videos by tweaking items within the video. OpenAI´s Sora video creation is the perfect match for Alison.ai because Alison effectively creates the optimized / ideal prompt for an AI-based video creator. The company is growing fast and has onboarded several S&P 500 customers.
Practical and current tips for founders planning upcoming money-raising efforts:
We suggest founders tap beyond Israel and the U.S. and talk to other international investors, to stay lean and maximize their runway to cope with the headwinds.
Name two portfolio companies that you think will thrive in 2024:
NeuReality
Sector + description of the product: NeuReality has developed a system-on-a-chip (SoC) for AI-centric servers, specialized in running AI inference workloads. The company’s chip is being designed to take any trained model and efficiently deploy and run it, replacing CPU-centric solutions, which are more expensive and less energy efficient, limiting performance and increasing latency. As the demand for traditional and GenAI applications rises, optimizing inference is becoming increasingly popular.
Investment Amount: The company’s total funding is $70 million, with investors including Samsung, Alumni Ventures, Varana Capital, Cardumen Capital, XT Hi-Tech, and OurCrowd among others.
Founders + year of establishment: The company was founded by Moshe Tanach, Tzvika Shmueli, and Yossi Kasus in 2019.
Why this company will thrive in 2024:
The world cannot get enough AI chips to run all the AI workloads that are now developed and being developed. Until now, Nvidia has been ripping the benefits from being one of the few suppliers for that use case, but not anymore.
Kahoona
Sector + description of the product: Kahoona has developed an AI solution for audience segmentation that allows companies to profile online customers without the need for third-party cookies. The company’s solution enables personalized experiences for every user, including anonymous and one-off visitors, by analyzing website interactions and converting these observations into practical audience segments.
Investment Amount: Kahoona has secured a total of $4.4 million in funding from several investors, including Global Founders Fund and Cardumen Capital
Founders + year of establishment: The company was founded in 2021 by Gal Rapoport and Alon Ashkenasi in 2021
Why this company will thrive in 2024:
The depreciation of 3rd party cookies is upending the adtech market. The global e-commerce market depends on it as well as many of the large adtech unicorms like AppsFlyer and OpenWeb. The new ads world needs a new tech stack and the largest e-commerce retailers in the world are already choosing Kahoona.
