“In most cases, a seed of $25 million is too high. It makes no sense.”

Some call it a crisis and some call it “organized restructuring”. Either way, it is undeniable that recent months have seen a correction in Israel’s high-tech ecosystem as companies have laid off dozens of employees and IPO listings have been scrapped at the last minute. 2021 saw record-breaking money invested in Startup Nation, and yesterday’s business catches up with today’s players.

“Today there are many open tools, resources and resources that founders can use to build something upstream and to test the market,” explained Dor Lee-Lo, co-founder at IBI Tech Fund. “In that sense, if you are a software-driven company, it is much easier for you today than it was 10 years ago to come up with something for the seed round.”

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Dan Dor IBI Tech FundDan Dor IBI Tech Fund

Dan Aks and Dor Lee-Lo of the IBI Tech Fund

(Photo: Ilan Bsor)

Founded in 2018 by Lee-Lo and Dan Aks, the IBI Tech Fund serves as the company’s managing partners. The founders decided to create a fund to blend their “experimental and theoretical” research into Israeli venture capital and the ecosystem to help them fund companies in the seed round. The fund typically invests $3-5 million in B2B companies across various sectors, with the exception of biomedicine. Some of the portfolio companies include LightSolver, Solidus, and Shopic.

Traditionally, a ballpark of $3-5 million for a seed round is a fair and reasonable number. However, over the years more and more money has been invested in Startup Nation, causing an inflationary reaction, with recent seed rounds reaching massive numbers. In particular , Winn.AI He earned $17 million, and OX Security He received $34 million in seed rounds in September 2022, which caught the eye in the investment community.

“It’s only natural that if you can reduce the risk a little bit to the investor, and you need more money, then it makes sense that the seed is higher than it was five years ago,” Li-Lo continued. “Keep that in mind, plus the salaries are much higher, it takes a shorter period of time but there is still a lot of money and expensive staff to build a quality product. In that sense, it makes sense that the amount you collect is higher than it was before.”

When the IBI Tech Fund started in 2018, the total amount of money invested annually in the Israeli tech ecosystem was about $5 billion. In 2021, that number was closer to $25 billion. “It’s about the capital supply and the fact that there are tons of money in the market,” he added. “When you see those big founding rounds, the investor said to themselves ‘We’re confident in the team, we don’t want to wait for a product that’s right for the market, we want to make sure we’re in Round A, so let’s put it together.’ I’m not sure it’s very healthy because I think it’s coming. From the investors and not from the company’s needs.”

According to the pair, these high seed rounds led to early high ratings, resulting in higher A and B rounds, and they are headed toward ratings that could eventually collapse. Earlier this summer, CTech mentioned That the Israeli company Bzabo saw its valuation drop by 30% in the new funding round. Their argument is that big seed rounds create high valuations, and these companies either collapse or become too big to get.

“I haven’t seen the details because we’re not investing in the $25 million seed rounds…maybe justified and maybe there’s a unique case when it’s right to do that and that’s the best course of action for the company that’s clear to me-Lo.” But I think in most cases, That $25 million is a very high seed.”

For now, the IBI Tech Fund is still in the best position for early stage companies seeking “only” a few million dollars. While the companies around them are shrinking in size and value, Aks and Lee-Lo admit not feeling the pressure as early-stage companies are preparing to enter the market in two or three years.

“We feel like it’s business as usual,” Axe said.

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