Seizing the Moment: Why Experts Believe Now is the Golden Opportunity for Investing in Israel

Since I’ve started writing about Israeli startups in 2004, there has never been any event like October 7 and the war that followed. Now, 150 days after October 7th, the Israeli startup ecosystem is once again in a tough spot. In February 2024, Israeli startups raised $293 million in 16 deals, a 60% decline from the $731 million raised in the same period a year before. In the last 3 months of 2024, Israel’s GDP shrank by 20% in annualised terms and Israel’s credit rating was downgraded by Moodys. All of this is in addition to the macro challenges that Israeli startups had to deal with in 2023 even before October 7th, including international investor unease due to the proposed judicial reform (that has since been taken off the table), Ukraine war, global venture slowdown (US VC investments were down 60% in 2023), etc.

But here comes the narrative violation: despite the challenges, Israeli tech continues to power on. Creating companies, raising funding, completing multi million M&A deals. Despite the challenges, I’m very bullish on the future of the Israeli tech ecosystem and am honoured to directly invest in Israeli startups with Remagine Ventures.

Sophisticated investors and tech leaders are bullish on Israel

But don’t take it from me. Juan Delgado-Moreira, co-CEO of Hamilton Lane, a $900 billion asset management company, said in an interview last week:

“Now is the best time to invest in Israel. The only real essential market for venture capital, apart from the USA, is in Israel, and those who do not invest in it should be ashamed”

Juan Delgado-Moreira, Hamilton Lane co-CEO

Or the words of Justin Borus, the founder and chief investment officer of Ibex Investors that just raised $106M to invest in early stage Israeli startups

“The U.S. credit rating forecast dropped in November, and since then the S&P 500 index has jumped by 15%. Investors do not give the credit rating the same attention as before. What is important for them now in the context of Israel is a permanent ceasefire. This could accelerate a new rally in the domestic market, so we are also becoming more aggressive here. We recruited two more people to the office in Tel Aviv, and in terms of investments, the current situation in Israel is the best in the 12 years I have been working here. Today it’s hard to see that, and we also felt that way after 9/11, but since then the markets in the U.S. have quadrupled.”

Justin Borus, Ibex Investors

Another company that largely benefited from Israel’s innovation is Nvidia, which became the third largest tech company in market cap:

“Israel is home to world-leading AI researchers and developers creating applications for the next wave of AI. With NVIDIA’s Israel-1 AI supercomputer, a broad range of innovative companies in Israel will create AI that can transform the productivity and business models of enterprises around the world.”

Jensen Huang, the founder and CEO of Nvidia (source)

Michael Eisenberg, co-founder of Aleph, an Israeli venture firm, said in a recent post:

“What is the elevator pitch for investing in Israel for the next decade? Israelis are the most resilient, optimistic, responsible, battle-tested and innovative civilian population in the world. In an era where political leadership is waning, invest where creativity is already tested against the challenges of the future. Invest where multidisciplinary innovation will lead to exponential breakthroughs and profits.”

Michael Eisenberg, Managing Partner, Aleph (source)

Israeli tech by the numbers

According to the 2023 annual report by Startup Nation Central, there are 7272 tech companies in Israel and 353 active investors. 2023 was a tough year for Israeli startups, but despite the challenges the Israeli tech ecosystem remained robust.

In addition, according to the IVC-LeumiTech Israeli Tech Review 2023 showed that while total capital raising declined, the capital raising median has shown stability over the year and is normalising with 2020 levels.

10 Israeli innovation accomplishments in 2023

In the spirit of celebrating the success and potential of Israeli startups, I thought I’d mention 10 achievements of Israeli entrepreneurs in the first two months of 2024 (in no specific order).

1. AI– Israel-1, a super computer developed by Nvidia in Israel, is now available for use by the company’s research and development teams and “selected partners,” and is housed in Nvidia’s Israel data center.

2. FINTECH – 6 Israeli startups included in the Fintech 50 ranking by Forbes – AtBay, FireBlocks, Melio, Navan, Next Insurance and Sunbit

3. CYBER – Israeli startup Wiz reaches $350M in ARR (Annual Recurring Revenue) just four years from inception, making it the fastest growing cybersecurity company in the world. Wiz is valued at over $10 billion.

4. FOODTECH – Israeli startup Imagindairy receives FDA approval for animal-free milk proteins. Imagindairy creates animal-free milk proteins from microorganisms via proprietary precision-fermentation technology. And Israeli food tech startup Remilk, a developer of cultured milk and dairy, was granted regulatory approval for the use of its cow-free milk protein in dairy products in Canada. Israel’s Steakholder Foods created a 3D printed ready to cook fish fillet.

5. HEALTHTECH – Techsomed, a medical imaging startup, allows physicians for the first time to see exactly what’s happening in real time while they destroy (or ablate) a tumor using targeted heat through a needle. The company’s tech breakthrough, Thermal ablation therapy, a minimally invasive procedure for small tumours, has huge benefits over surgery or chemotherapy for the patients.

6. CLIMATE TECH – Seven Israeli climate startups were recently awarded the Climate Solutions Prize (CSP), an initiative that incentivizes innovations that address the climate crisis. Filo Systems, Electriq, TIGI, Nemo Nanomaterials, Envomed, Biotic and BaTTeRi (EV charging as a service).

7. SPORTSTECH – Playermaker, an Israeli sports-tech company that develops small devices that attach to and track soccer players’ performances on the pitch, has been awarded the Electronic Performance and Tracking Systems (EPTS) FIFA Quality Programme certification. It can now be used to track players in official games.

8. GAMING – Israeli game Lost in Play (by Snapbreak games) won the iPad game of the year in 2023 (source). Kooply, a game development engine in stealth, was of the 20 winners of the 2024 Game Changers list by Lightspeed Ventures.

9. AGTECH – Tel Aviv-based Bluewhite has developed autonomous tractors and other farm vehicles that can spray, mow, and disc farm fields while collecting data on crops. Israeli startup Beewise has created a solution in the form of an autonomous beehive that uses AI-powered precision robotics to manage all beekeeping activities. Its automated BeeHomes are solar-powered, climate- and humidity-controlled, allow for automated harvesting, and can even alert apiculturists when their hive is likely preparing to swarm, preventing injuries to both humans and bees.]

10. HARDWARE – Intel announced plans to set up a $25 billion chip plant in Israel. Israeli startup Sightful unveiled Spacetop, the first AR-powered laptop. DustPhotonics created 800G silicon photonics chip, a key enabler for AI. Israeli battery Addionics which develops technology to improve the performance of batteries, announced on Monday a planned $400 million investment into its U.S. manufacturing facilities as part of a multi-year roadmap to support domestic EV battery production.

The list goes on and on.

Israeli startups deliver #NoMatterWhat

I’ve started VC Cafe in December of 2004. It was a tough time for Israeli startups, as the dot com bust wiped out much of the budding venture capital ecosystem, funds were licking their wounds, and the conflict with the Palestinians dominated the news in 2005, so I wanted to share a spotlight on the incredible innovation and entrepreneurship going on in Israel, in English.

Fast forward to mid 2020, at the peak of Covid. Israel was under strict lockdowns, investments plummeted and the future looked bleak. To celebrate the success of the Israeli startup ecosystem, I started “#Firgun“, a weekly newsletter shining a spotlight on the founders and investors who made an impact, including new fundraising rounds, exits, new funds launched and other things. The newsletter has since grown to almost 5,000 subscribers and I invite you to sign up here.

All I can say is that every crisis is an opportunity. What goes down often comes back up, and every dip could be a hidden opportunity in disguise. Rather than adopt a victim mentality, Israeli entrepreneurs do what they do best – build, invent, overcome obstacles and continue to develop a healthy disregard to the impossible. In the words of David Ben Gurion, Israel’s first Prime Minister “In Israel, in order to be a realist, you must believe in miracles.”

Requests for Startups in 2024

Most startups equate the process of fundraising to dating – founders have to typically kiss a lot of frogs until the find the right fit. Investors are typically focused on stage, geo and in some cases sector, but there are always exceptions so it’s hard for startup founders to assess who might be interested to embark on their journey. In addition, founders thinking about starting a company can be overwhelmed by choice, as there are so many problems to tackle with technology, but it could be comforting to know that investors are interested in those areas in the first place.

That’s why lists like Ycombinator’s Requests for Startups (RFS) help entrepreneurs thinking about starting a company (or picking a problem) and can be a good barometer for founders on what’s interesting to investors right now. It’s been a while since they’ve updated their RFS list and it captures all the buzzword’s of today’s tech world: AI, defence tech, climate, spatial computing, etc. I’ve recently come across several of such lists and I thought it could be useful to aggregate them and share them here.

Ycombinator’s RFS 2024

  • Applying machine learning to robotics – While consumer use-cases feature heavily in science fiction, some of the overlooked and most immediately addressable applications for robots are B2B
  • Using machine learning to simulate the physical world –  companies replacing existing simulations with ML-based ones, along with companies using ML-based simulations to open new markets currently unaddressable
  • New defence technology – New companies that sell to the DoD like Palantir and Anduril
  • Bring manufacturing back to America – New ML-based robotics systems will make it possible to automate far more, which will reduce the cost-of-labor arbitrage that pushed manufacturing to other countries in the first place.
  • New space companies – If we are entering a future with access to space being as routine and inexpensive as commercial air travel, shipping or trucking… what new businesses does that unlock?
  • Climate tech – We have a fair chance of avoiding catastrophic climate change if startups offer commercial solutions to decarbonize society or remove carbon from the atmosphere.
  • Commercial open source companies – being open source is a powerful way to gain developer adoption and sell to enterprises a lot sooner.
  • Spatial computing – with the launches of the Apple Vision Pro and the Meta Quest 3 a new personal computing platform may evolve over the next decade. Looking for startups solving practical use cases that go beyond gaming.
  • New enterprise resource planning software (ERPs) – new startups that build software that helps businesses run.
  • Developer tools inspired by existing internal tools – tools or frameworks that were built by programmers at their previous company to help solve their own particularly painful or repetitive problems.
  • Explainable AI – For society to reap the full benefits of AI, more work needs to be done on explainable AI. Looking for startups building new interpretable models or tools to explain the output of existing models
  • LLMs for manual back office processes in legacy enterprises – LLMs allow whole categories of manual processes to be automated in ways that weren’t possible until recently. Where there’s linguistic ambiguity or some amount of subjective evaluation needed, LLMs come into their own.
  • AI to build enterprise software –  In the future, every enterprise could have their own custom ERP, CRM or HRIS that is continually updating itself as the company itself is changing.  
  • Stablecoin finance – looking for great teams building B2B and consumer products on top of stablecoins, tools and platforms that enable stablecoin finance and more stablecoin protocols themselves
  • A way to end cancer – innovations in the MRI hardware, the AI algorithms to interpret scans and reduce false positives, and the business models and consumer marketing to make it a viable business
  • Foundation models for biological systems – highly technical founders building foundational models from scratch in any part of biology or medicine
  • The managed service organization model for healthcare – Looking for startups building on the MSO model that enables doctors to run their own clinics by (1) providing them software that can handle back office tasks such as billing and scheduling and (2) channeling patients to them.  
  • Eliminating middlemen in healthcare – from using AI to automate repetitive human jobs to exploring new and better business models for providing care.
  • Better enterprise glue – By generating custom code for uncommon, company-specific use cases, large language models have the potential to eliminate the need for glue code altogether including ETL pipelines, integrations, and custom workflows.
  • Small fine-tuned models as an alternative to giant generic ones – when finely tuned with appropriate data, smaller, specialised LLMs can yield comparable results at a fraction of the cost. Looking for companies creating tools to facilitate construction of or fine tuning models.

Andreessen Horowitz Consumer Team Opportunities for startups

I’m a big fan of the content A16Z has been publishing on generative AI over time. One of my favourite pieces has been The Abundance Agenda, a deck on how AI will transform consumer technology, packing inside areas of opportunity, or in other words, requests for startups.

Content creation:

  • Generation tools that kill the “blank page” problem – ideating,
  • Making open source models accessible – create the interface to utilise open source tech in the browser (or an app).
  • Creating remixable outputs – allowing creators to expose their prompts and make their work instantly remixable
  • Enabling consumers to build content creation apps – products that help users “chain” together models and prompts behind the scenes – and then save these workflows and / or publish them for others to use.

Content editing:

  • Owning multi-media workflows – combine an image with text, music with video, or animation with a voiceover. Alow users to generate, refine, and stitch different content types in one workspace
  • Enabling in-platform refinement – AI products can help users identify what can be improved, and then automatically make these changes.
  • Iterating with intelligent editors – products that enable users to take an existing output and refine it (ex. regenerate one frame or feature) without completely starting from scratch.
  • Automatically repurposing content – leveraging AI to automate manual editing to repurpose a piece of content for different platforms.

Productivity gains

  • Agents that act as systems of action – agents that can complete common consumer tasks like booking a restaurant or finding and sending a gift to a friend.
  • Voice-first apps – voice dictation and summarisation AI apps allowing consumers to share more complex and even unfinished thoughts.
  • Apps that provide in-flow assistance – an AI assistant like Microsoft’s ‘Clippy’ that magically appears where and when needed to avoid context switching.
  • “Build your own” workflows – no-code automations and workflows – LLMs acting as intermediaries to allow users to stitch together much more complex flows than pre-AI.

Companionship

  • Differentiated value prop vs. generalist chat products – AI companion products hat specialise in content that mainstream models aren’t good at (or don’t allow), like fictional role plays or erotica.
  • New methods of interaction – beyond text box interaction, a companion you can summon anywhere, with a voice, avatar, and animation that feels like a real friend hanging out with you
  • Apps that enable memory and progression – A companion should get to know you better over time, remember your previous conversations, and change the nature of the relationship.

Social

  • Hybrid AI x human communities – messaging & social apps where bots are treated as equal citizens. Bots should be able to join chats with you and friends, and weigh in or spark discussions.
  • Live, interactive entertainment at massive scale – AI allows anyone to be an entertainer with the help of generative avatars. AI characters are already hosting interactive streams and shows in which they respond to audience questions, comments, or votes in real-time.
  • Next-gen avatars for next-level communication – AI gives consumers a hyperrealistic digital likeness they can use to instantly generate and share these assets.
  • AI to make IRL matches – What if you could chat with a bot that learns about you on a deeper level and uses this information to make a curated set of matches?

Education

  • Multimodal ability – apps that allow users to “input” questions, topics, or ideas in all forms (audio, image, text, and even video) and get a response in the media type that helps them learn best.
  • New interfaces that break the “edtech” mold – the rise of more casual, experiential learning at scale.

Personal Finance

  • Cross-account visibility and management – Today’s AI products can analyze and move money between accounts – as agents improve, they will make trades across accounts.
  • Auto-optimization across products – Many consumers are “overpaying” for their debt, insurance, and bills, AI agents can take over this process.
  • Programmatic investing using natural language – Using natural language or decision trees, consumers with no knowledge of code can build algorithms that execute trades for them.
  • Complex transactions move from services ? AI – tax planning or wealth management augmented and in some cases replaced with AI.

Ark Invest’s Big Ideas 2024

Cathy Wood, the founder of Ark Invest published the ARK Big Ideas 2024, an annual report titled ‘Disrupting the Norm, Defining the Future’. It identifies five innovation platforms converging and defining the technological era: AI, public blockchains, energy storage, robotics, and multiomic sequencing.

  1. Technological Convergence – The global equity market value associated with disruptive innovation could increase to 60% by 2030.
  2. Artificial Intelligence – Scaling global intelligence and redefining work: AI training costs should continue to fall 75% per year.
  3. Smart Contracts – Powering the internet-native financial system, smart contract networks could generate fees of $450bn in 2030.
  4. Digital Wallets – Digital wallets could grow select vertical software platforms’ revenues to $27-$50bn in 2030.
  5. Robotics – Generalizing automation, thanks to the convergence of AI software and hardware. Generalizable robotics represent a $24 trillion-plus global revenue opportunity.
  6. Digital Consumers – Transitioning toward digital leisure, where spending could teach $23 trillion in 2030.
  7. Electric Vehicles – Lower battery costs powering adoption mean EV sales could reach 74 million in 2030.
  8. Robotaxis – Robotaxi platforms could create $28 trillion in enterprise value in 2030.
  9. Multiomic Tools & Technology – Translating biological insights into economic value: R&D spending could decline by more than 25%, thanks to multiomic tools and technology.
  10. Reusable Rockets – Satellite connectivity revenues could exceed $130bn per year in 2030.
  11. Autonomous Logistics – Global autonomous delivery revenue could reach $900bn by 2030.
  12. Bitcoin Allocation – Growing the role of bitcoin in investment portfolios. During the last seven years, bitcoin’s annualized return has averaged around 44%.
  13. Bitcoin in 2023 – After challenges in 2022, bitcoin’s price surged 155% last year, reaching $827 billion in market cap.
  14. Precision Therapies – Curing disease more efficiently and less expensively. The enterprise value of companies focused on precision therapies could reach $4.5 trillion by 2030.
  15. 3D Printing – Revenues could grow 40% at an annual rate to $180bn by 2030.

Sarah Guo – Conviction Capital and Embed Accelerator

Sarah Guo believes that with current advancements in generative AI, and LLMs in particular, smart founders can be up and running with a product that users want in a matter of weeks. For that purpose, she launched Embed, an accelerator program.

  • Verticalized Video Understanding – machine interpreted video. there is a wealth of opportunity in home security, public safety, workplace safety, health/fitness, contextual advertising, automated video editing, customer education/support, retail (checkout and loss) and parking/traffic management. 
  • Deepfake Detection – demand for a mobile application that provides deepfake detection, Caller ID, spam blocking and perhaps even live translation or agentic experiences for call handling.
  • Your Workshop Assistant – build assistive tooling that either helps engineers narrow down their design space more efficiently or performs some set of menial tasks for them as a starting point; second, combining generative models with post-processing work to “clean up”, like simulation for validation and other post-processing, to reduce the burden on zero-shot model output. 
  • KYC/KYB Automation – emulate some of what a human compliance agent might do in their investigation, and, at minimum, can parallelize workstreams and surface potential red flags.
  • One Giant Leap for Healthcare Admin -Breakthroughs in transcription, speaker diarization, translation, summarization, LLM web navigation/form filling, and general retrieval and reasoning will revolutionize the patient encounter and claims / prior auth workflows
  • Your Personal Seller – Foundation models enable the at-scale generation of alternative product listings and also therefore A/B testing of variants to improve conversion and potentially optimize for different audiences
  • AI Therapist & Coach – One of the emergent use cases with the initial wave of LLMs has been a mix of therapy and personal coaching, but the current models are poor on memory, safety and security.
  • Automated Root Cause Analysis – there’s an opportunity for automated root cause analysis to substantially improve incident resolution time, and the experience for engineers. A lightweight “agent” with access to logs and metrics can, to start, retrieve relevant information (e.g. service statuses, past error logs, similar prior incidents) and suggest fixes based on what previous resolutions were. After an incident, the same agent could be used to provide a “best practice” resolution for future incidents. and generate a post mortem. Long term, agents might even be able to automatically fix common reoccurring issues
  • End-to-End Legal Outcomes – automate certain end-to-end, transactional services provided by law firms such as immigration firm in a box, trademark filing or contract reviews.
  • High-Consideration Research – LLMs are really good at quickly reading and synthesizing hundreds of pages of content on any topic. Is there a good consumer product experience to be built around building a dynamic, interactive, comprehensive query experience for high-intent, high-consideration purchases?
  • Workforce Tetris – Recruiting, employment compliance/admin and logistics requires a backend database and scalable workflows, but the next generation of workforce software shouldn’t put that burden on managers or workers.
  • Next-Generation Autocomplete – a system that learns your style and completes everything you need to write based on your history, with privacy and speed.
  • The All-Seeing Eye – Hardware and storage should be rethought from the ground up in the age of semantic video understanding, and powerful on-device models. A full-stack security services firm could see more, cost less, and offer a step-function better experience.
  • Always Pick Up the Phone – Voice generation quality and LLM capability are approaching the ability to handle many transactional calls. What’s missing is the last mile — distribution, customer journey design, guardrails and workflow automation.
  • Developer in a Box – the ability to go from a human description of an issue to a draft solution, in code, to the problem. 
  • AI Static Analysis Tools – internal tooling that automatically triages and prioritises issues identified by other systems.
  • AI-Native MMPGs and Social – What would a game world populated by AI’s be like? What if the next generation of entertainment is personalized generations? 
  • AI Video Generation, Editing and Understanding – Companies that democratise video production, editing, personalisation and understanding
  • Web Content APIs – current web content APIs lack the flexibility & feature set required to power large scale web applications. There doesn’t exist a web search API that has access to page content, parsed outlinks from the page, or even edit history. 
  • The Tireless (Junior) Financial Analyst – global accounting, tax, financial reporting and compliance standards are all codified in natural language. Transform financial and accounting software from databases to context-aware, proactive processors. 
  • Autonomous HR (and IT) Helpdesk – A domain populated with process documentation, ever-changing compliance needs, complex policy application, forms, and natural language communication is ripe for attack by LLMs.
  • Technical Support –  a “debugging copilot” for the engineers currently working in technical support.

These are just a small selection of ‘requests for startups’ or rather, opportunities for startups leveraging technology. The power of LLMs is advancing rapidly, meaning that we’re just at the beginning of this technology wave. Founders choosing to work on non-obvious, large niche problems, can still get an early mover advantage. It’s time to build! I also recommend Erik Torenberg’s podcast ‘Requests for Startups‘ for in-depth deep dives on various verticals.

Shameless plug: At Remagine Ventures, we back pre-seed startups at the intersection of tech, entertainment, gaming and commerce. If you’re an Israeli or UK startup building in these spaces and you’d like to get quick feedback and VC-friendly advice, don’t hesitate to get in touch.

How the pre-seed round made a comeback in 2024

A founder asked me what makes a $2M round “pre-seed”? especially if the startup already has a product and revenue? And why do we still sometimes hear about pre-seed rounds that look more like a series A in pricing and size? What’s the difference between an angel round and pre-seed round and why do I believe we’ll see more pre-seed rounds taking place in 2024?

While the answers are somewhat semantic, the pre-seed funding round is making a comeback in 2024 startup financing. Pre-seed rounds accounted for 14% of all seed stage deals in 2023, up from just 5% in 2020 according to Pitchbook data and I predict it will be even higher in 2024.

Data by Carta (mostly US companies) reveals that although on average startups saw a 50% reduction in funding in 2023 (the impact in Israel was closer to 65%) pre-seed funding rounds rose by 51%! In comparison, priced seed rounds declined 33%, capital flowing to series A rounds reduced by 61% and money invested in series D declined by 82% in 2023.

Data from Crunchbase shows a pretty consistent picture.

Defining the pre-seed round

It’s futile to look for ‘one true’ definition. Pre-seed round tends to be the first ‘institutional’ round of funding in a startup. It can be after the angel, or ‘friends and family’ round, or clubbed together. There are of course anomalies, like French AI startup Mistral which raised a “seed” round of $113M in June last year.

According to Carta, Pre-seed means “companies raising less than $1 million on SAFEs who have not raised any priced equity”. While I think the amount is more variable (and can go typically to $1.5M-$4M), I believe Carta is a good indicator on the current average terms for US early stage deals:

• 80% of pre-seed fundraising (up to $1M) happens on SAFEs
• 80% of that is post-money SAFEs (the YC default has become everyone’s default)
• 90% come with a valuation cap of some kind, about 40% also have a discount

Pre-seed rounds below $1M in the past 6 months (source)

Naturally, I asked ChatGPT to outline the differences between a pre-seed and seed round. As you can see, it’s a bit vague, and basically the main difference (apart from the amounts) is the purpose of the round and what the startup has to prove. Pre-seed tends to be about developing an MVP and generating early traction. Seed is about showing initial product market fit.

AspectPre-Seed RoundSeed Round
Stage of FinancingEarliest stage, before seed roundFollows the pre-seed round, before Series A
Purpose and Use of FundsValidating the business idea, conducting market research, developing a prototype or MVPScaling the validated idea, further product development, initial marketing
Typical InvestorsFounders, friends and family, angel investorsAngel investors, early-stage venture capital firms
Amount RaisedLess than seed round, usually under $500,000Higher than pre-seed round, often between $500,000 to $2 million
ValuationTypically lower due to higher risk and earlier stageHigher than pre-seed, reflects reduced risk and proof of concept
FocusProving the concept and setting the groundworkScaling the business and preparing for Series A

Why are Pre-seed rounds poised to grow now

The typical pre-seed investors are angels, accelerators and VC funds, particularly micro funds who specialise in the pre-seed stage. So far there’s not much that has changed, so why should pre-seed look any different in 2024?

Below are just a few contributors to the rise of pre-seed in the current market:

Explosion of Micro funds – In recent years, there’s been a steep increase in the number of micro funds, which are generally below $100M in size. This list by Shai Goldman is a good sample, and I’m proud that Remagine Ventures is included in this group. In smaller funds, ticket sizes tend to be lower, so pre-seed is the only stage where micro funds are able to secure their minimum equity targets.

Everyone moved to earlier stage – part of the decline in late stage investing is the ‘baggage’ of companies that previously raised money at inflated valuations that they would struggle to justify in today’s market. Carta reports that 20% of the rounds in 2023 were down rounds, but I believe the actual number is much higher. For that and other reasons (like cash preservation) VCs moved to focus more on earlier stage, and many funds that typically invest in A started deploying more into seed rounds. That’s yet another reason for micro funds to move earlier in the fundraising timeline.

Lower valuations and follow on valuation sensitivity – fundraising is a recurring event in the life of a startup. To reduce the impact of dilution, the expectation is that startup valuation should more or less double between the pre-seed to the seed, and seed to series A (ideally backed by reasonable traction/ revenue multiples). Not only the bar for seed rounds has gotten higher (as less seed rounds get done) but also the founders prefer to build their company based on milestones.

During ‘peak VC’ in 2021, when money was cheap and free flowing, many startups opted to skip the pre-seed round as they could raise $5M off of a deck at pre-money $20M valuation with zero revenue. Today, most founders would be wary to try to raise a seed round at $40M pre with $1M in ARR, so they are opting to raise a pre-seed to build the MVP and ship it to first customers, reducing the burden of proof and valuation expectations.

Fresh data from 15,000+ SAFEs signed last year (source: Carta)

Technology makes it possible to do more with less – LLMs, generative AI have are rapidly changing the game with all kinds of automations, from coding to content creation. Sam Altman recently said that we’re not far from the day that we’ll see a billion dollar company with one or few employees. Therefore, software startups (it depends of course) need less money than ever before to build an MVP and get to first customers.

What founders need to approach Pre-Seed VCs with confidence

As a pre-seed investor I can share how we evaluate the attractiveness of investment opportunities we evaluate:

Founding team – while the product, business model and market may all change with time, the founding team is the core of the company. We’d like to see that the relevant functions are covered (who’s writing code? who’s talking to customers?) and there’s a founder/problem fit, trying to answer the question of why is this the right team to tackle the problem, and whether we believe they can attract top talent to join them.

Market / opportunity size – one of the main tasks of pre-seed investors is to evaluate whether a startup is a fit with the VC model in general. Profitability potential is not the only filter VCs look at. VCs are looking for businesses that can become HUGE. As I wrote in the past, it’s ok, and even recommended to find a niche that might in time become big, but we need to see the potential of the startup to scale.

Product/ tech/ insight – In many cases, pre-seed startups might already have a minimal viable product or at least some initial functionality to demonstrate potential. Though your market opportunity may vary in obviousness, you’ve identified a clear gap your product aims to fill. We’d love to understand why you think this is a great opportunity that you’re willing to dedicate your next 7 years (give or take) pursuing.

In summary, the return of the pre-seed round in 2024 highlights a strategic shift in the startup ecosystem towards earlier engagement with investors, a milestone-driven approach to company building, and the advantages of partnering with specialist funds.

Shameless plug, at Remagine Ventures we’re one of those specialists funds, investing in the future of interactive entertainment tech, gaming and next-gen consumer startups. I genuinely believe that the next 24-36 months will be a great vintage to invest in early stage. Strong consensus founders in strong consensus areas have always attracted capital, but the real gems may lay outside of those pockets.

At the risk of sounding cliche, there’s never been a better time to be a startup founder. Think about it this way: talent is becoming available (all these layoffs you’re seeing big companies do are a pipeline of experienced talent for your startup), money for the earliest stage is flowing and new technology, in particular LLMs and generative AI has the potential to tackle many problems at scale without massive infrastructure costs.

Will the Apple Vision Pro launch a new era in spatial computing?

New products are launched everyday in tech. But it’s not everyday that Apple launches a new product, and the Apple Vision Pro is special even within that category. The biggest hardware launch by Apple since the iPhone was introduced in 2007, the Apple Vision Pro is a mixed reality headset and it’s about to send the world into a new era of spatial computing. It’s a new category all together: not a smartphone, not a VR headset and in many ways, not yet meant for the mass market.

There are a lot of excellent reviews popping up on the Apple Vision Pro (some more critical than others). This is not meant to be another one of those. I’m in New York this week and looking forward to try the device tomorrow. After all, one of the big advantages that Apple has in taking a new product to consumer is it’s physical infrastructure of stores when they can craft every part of the experience and collect valuable feedback from customers back to HQ.

The Apple Vision Pro has been under development for the best part of a decade. Take a look at this patent for example that Apple filed back in 2007. In Tim Cook profile in Vanity Fair, Apple’s CEO says how he knew they will always get here, but he didn’t know how long it will take.

Rather than talk about its features, I chose to focus on its potential and the use cases that make it shine. A picture is worth 1,000 words so I’ve collected a few videos that bring these potential use cases to life. The best is yet to be invented yet, I’m sure, but even what’s already available in this first days of a new category is likely to blow your mind. Let’s dive in.

Compelling use cases for the Apple Vision Pro

According to Apple, there are 1 million apps from iPad and iOS that are compatible with the Apple Vision Pro as well as 600 new experiences that take advantage of the unique capabilities of Vision Pro. The product went on sale in the US on February 2nd 2024, and retails for $3,500. You can watch the official product demo here.

Productivity – for the Apple Vision Pro to become a mainstream device, it needs to be more than just immersive entertainment. While it’s still very early days, this demo by an early user is more compelling than the Apple ad for the device

Apple Vision Pro Digital Persona – to make meetings more personal, Apple used neural networks and sensors on the Apple Vision Pro device to create a digital avatar that mimics your facial expressions and is available to use with Facetime.

Real time translation – staying on communication,

Immersive Media – Apple Vision Pro seems like a lot of fun for consuming immersive media in your living room. It reminds me of Magic Leap’s vision – which was directionally right, but perhaps a bit ahead of its time. Beyond just a giant screen (which is also cool) the volumetric video stuff looks amazing. Look at this Formula 1 race in your living room

F1 fans will be drooling on this

Spatial Gaming – games were a killer feature for the smartphone when you compared it with a BlackBerry, and it seems to be a major use case for the Apple Vision Pro. I especially like these graphics on real world surfaces or video. Reminds me of ‘Avo’ that was developed by London based Playdeo and was quietly acquired by Apple a few years ago.

Rodney Mullen’s Skatrix by Niantic looks AWESOME.

Skatrix on the Apple Vision Pro

There’s also Synth Riders which looks like it wants to be the Beat Saber for the Vision Pro

Synth Riders

Gamification of the real world – When you can collect coins while vacuuming, doing the house chores can be fun.

Immersive Education – Meta’s Quest device emphasised the use case of education in many of its marketing materials. But while VR blocks the user from the real world, AR augments the real world. A good example of this potential is Flowing Tiles, an app to learn Piano where you can still see your keyboard as well as overlays

Music – The Apple Vision Pro is equipped with Spatial Audio pods positioned next to each ear, which basically enable a 360 sound experience. In addition to consuming music in your background environment of choice, the Apple Vision Pro is great for enjoying immersive concerts with apps like AmazeVR or learning how to DJ.

Everything in 3D – the Apple Vision Pro has the potential to accelerate the adoption of 3D content. Whether it’s for shopping, education or learning how to fix your dishwasher step by step, this app by Jigspace is a great example of that.

Another example of this is playfulness with 3D objects is Blackbox, a game that rewards user curiosity and lets players interact with the world around them.

Immersive tours for real estate properties and soon, hotel rooms – Zillow created an app for the Vision Pro that enables user to visually tour homes for sale.

Space mapping – Apple’s superiority in spatial computing and the understanding of objects in a room, a strength Apple has been building for some time, makes the Apple Vision Pro reveal the potential.

Form Factor – When I had an early version of Google Glass, my favourite feature was hands free videos while cycling. But even with Glass, which was significantly smaller than the Vision Pro, the form factor was an issue. So much so, that the term ‘Glasshole’ was born. I believe the Apple Vision Pro is currently a bit too big and bulky for extended use outside the home/office, but it’s been fun to watch the videos of people using the device in the wild.

And as usual, the Simpsons predicted the future long before.

Developer adoption of the Vision Pro is likely to accelerate as the glowing reviews for this new device continue coming. The next version is likely to try to correct a lot of the issues that are being reported, and perhaps this release is the kickoff for a new wave of spatial computing to come.

Shameless plug, at Remagine Ventures we back entrepreneurs in Israel and Europe at the pre-seed stage. If you’re building a compelling new use case for the Apple Vision Pro, we’d love to speak with you.

2023 Global Venture Reports were Gloomy, but there are reasons to be optimistic

It’s easy to find bad news about venture capital these days. Take for example this Wired article, “The VC Funding Party is Over“.

The glory days of VC are over, and if history is any guide, the tech bust should last through 2024 and beyond. In other words, the venture capital bust has only just started.

Edward Chancellor, Wired

Sounds gloomy, doesn’t it? In many ways, Edward is right. 2023 was a rough year for Venture Capital and for startups, and it might get even worse. That’s the case for most companies that are already in the market, especially if they raised funding at imaginary valuations before.

But as first cheque investor, I’m naturally optimistic. I believe there are a lot of problems need solving, my outlook is longer term and I invest in new companies (most of the startups that Remagine Ventures II will invest in don’t yet exist).

On a flight to the US this today I read several 2023 venture capital reports (CB Insights, Axios, Carta, Crunchbase, IVC Online and others) and tried to digest all the numbers. This post is divided into two parts: the first part is a data dump, in an attempt to summarise the reports, and the second part contains reasons to be (cautiously) optimistic. Spoiler alert: I believe that 2024-2025 will be an amazing time to invest in early stage startups.

2023 was a rough year for Venture Capitalists and startups alike

Plummeting deal volume (US down 40%, UK %50, Israel 60%) back to 2017 volumes. According to CB Insights’ State of Venture 2023 report, Q4 2023 was the harshest quarter in venture capital for the past 6 years.

Global venture funding fell 42% year over years to $248.8 billion and the US saw the lowest deal volume in a decade.

The industry’s largest investors significantly slowed. For example, Tiger Global, a crossover fund which was one of the most active venture investors in 2021 went from 194 deals in 2021 to a mere 20 in 2023 and has been trying to actively sell its positions in the secondary market at steep discounts to get liquidity. This chart by the WSJ shows the impact.

To put in context, the major crossover funds Tiger Global, Temasek, Coatue and Softbank participated in $148B of VC deals in 2021. In 2023 all crossover funds were part of just $34B of VC rounds. The biggest contributor of late-stage funding crunch.

Dealroom global tech report (source)

As a result, 2023 has also seen a 43% decline in mega rounds of over $100M, though they still exist.

Valuations are down massively from 2021 peak, especially at the growth stage. According to Carta’s State of US startups 2023 report valuations for series A and up have been reduced by over 80% from Series A and up (it gets worse by stage). Seed valuations are down “only” 57% compared to Q4 2021.

VC funds struggled to raise new money (and sold parts of their holdings at steep discounts). According to Industry Ventures, the secondary market reached $105 billion in 2021 and is expected to have crossed the $138 billion mark in 2023.

M&A and exits were at the lowest level of the past decade in 2023. According to Pitchbook, the total M&A transaction of 2023 is the lowest seen in the past decade and just a quarter of the record high of $103B seen in 2021.

Most sectors were negatively impacted in 2023 in terms of funding amounts and deal volumes in 2023.

There were a few modest winners – fintech and retail tech startups saw double digit funding growth in Q4 2023. Fintech also saw 8 new unicorns in Q4’23.

And not a particular sector, but AI startups, in particular generative AI attracted close to $50 billion in funding last year, globally. That’s a 9% increase from the $45.8 billion invested in 2022. Most of that funding went to foundational models like OpenAI, Anthropic and Inflection AI which collectively raised $18 billion in 2023.

Finally, as I mentioned in my previous post on VC Cafe, a Unicorn status went from a status symbol to a liability in the 10 years since the term was coined, as startups struggle to justify ‘up round’ valuations.

However, there’s a light at the end of 2024

You can tell the market doesn’t believe that we’ve hit rock bottom yet. Many startups extended runway, cut costs and took on painful down rounds or expensive debt to avoid raising in 2023. Those ‘band aids’ are running their course and it might get worse (i.e. company closures, bad M&A deals) before it gets better. The hint that we have yet to see the bottom is the relatively low volume of PE investment. However, there is a light at the end of the tunnel.

Generative AI is game changer. Enterprise adoption of generative AI is still in its early days, but according to Accenture, it is expected to unlock an additional $10.3 trillion in economic value against the baseline by 2038. The rise of generative AI is expected to affect every vertical: health, education, fintech, gaming – creating opportunities for startups.

While the majority of generative AI funding was concentrated in a few companies, we’re seeing a rapid rise of open source models, which remove the barriers for new startups which lack deep pockets, vast data and expensive engineers. The 2023 open source generative AI survey by the Linux Foundation found that 41% of organisations expressed a clear preference for open-source generative AI technologies over proprietary solutions. It’s not just a cost consideration, but a desire for independence and neutrality.

The strategics (Google, Amazon, Microsoft, Nvidia etc) invested over $25B in generative AI startups in 2023 (source), outspending traditional VCs. Several corporates launched dedicated funds to invest in Generativ AI startups, including Salesforce Ventures and Visa. It’s reasonable to expect that M&A of generative AI startups will follow.

Rates coming down – The Fed is expected to cut interest rates this year, potentially thawing capital into startups, and opening up the IPO window (which will give funds/LPs liquidity).

The age old cliche continues to be true – there has never been a better time to launch a startup. New tech advancements means founders can do more with less, mass layoffs and fallen unicorns also mean experienced talent has become available and lessons learned from the crash means management teams are focused on responsible growth and unit economics vs. bliztscaling.

There are of course exceptions – the advent of AGI, which we seem to be rushing towards might make a lot of companies redundant. Global tensions are rising and we’re seeing a lot more scary media articles talking about the possibility of WW3. Supply chain, in particular around chips (which might be impacted severely in case of an escalation in Taiwan), can cause havoc in tech.

But barring those big tectonic shifts, I truly believe that category defining companies will get started in 2024 and 2025. And I’m excited to be in the market to support them on day one. Shameless plug, Remagine Ventures is open for business. If you’re building a category defining startup in Israel or Europe, we’d love to chat.

Israeli startup Landscape Collection – 2024


Regular readers of VC Cafe are well aware of my passion for startup landscapes. This year is no different, and I’m excited to see what 2024 brings. Without a doubt, the only thing that is constant in the startup ecosystem is change!

This post will be updated regularly throughout the year with the new startup landscape maps. You can find  the previous editions from Q3-Q4 2022, Q1-Q2 2022,  July 2021, July 2020 and May 2019 as well as the 2023 annual landscape collection.

The 2024 Israeli startup funding ecosystem

Cardumen Capital have updated their landscape of Israeli startup capital – including the angels, both local and foreign venture investors active in Israel as well as CVCs, accelerators etc. Proud to have Remagine Ventures on the map ;-)

The 2024 Israeli startup capital landscape (click for hi-res PDF)

Israeli Space Tech

There are 105 startups are operating in Israel in the field of space applications as of February 2024. These startups have raised a total of $314 million in 2023, with many focusing on dual application technologies that solve challenges in the space market, but can also be utilised on Earth. The Israeli space startup landscape was created by The Earth & Beyond Ventures VC fund and Deloitte Israel and published in Calcaslist.

Israeli space tech startup landscape by Earth and Beyond Ventures and Deloitte Israel (Feb 2024)

The Israeli Crypto and Web3 startup landscape

With the price of Bitcoin inching close to $70,000 and multiple ETFs launched, crypto investing in thawing again after the ‘second crypto’ winter.

Israeli crypto and Web3 fund Collider published its new landscape today, noting that Israeli crypto startups raised over $100 million since October 7th, and that the first Decacorn (i.e. startup that generated $100M in revenue) is emerging.

Overall, the map lists 145 startups that have raised a total of $3 billion in funding across 16 categories- from infrastructure and security to DeFi and Compliance.

Israel’s crypto ecosystem in 2024

Contextual Fintech Landscape

Noam Inbar, partner at Viola Fintech introduced the “Contextual Fintech” landscape – and charted over 120 existing players in this domain including many Israeli startups.

There are some great examples of embedded finance, in which integrating a new product that introduces fresh functionality within an existing product while staying within the same framework or domain. But the holy grail to creating the ultimate experience is in the intersection of embedded, personalized, and on-time. Or, in a word – contextual.

Mapping the contextual fintech evolution, Calcalist

The Rapid Evolution of Generative AI Video footage

2023 was the year of generative AI, but more specifically, the year we witnessed the power and potential of LLMs, large language models. A lot of the world of work is based around text: documents, email, content, media. Both startups and large tech companies leaned in hard, incorporating automation tools and generative AI applications across verticals.

Visual generative AI made strides as well. Midjourney V6, which was launched in December 2023, and and OpenAI’s Dalle-3 both provided a step jump in image creation.

But the next frontier is video. Progress in generative AI technologies for video has also be moving very fast, but it’s generally less talked about than text and images, which already have products with wide consumer adoption.

Generative AI in video consists of several buckets:

This post focuses on video footage generation.

Timeline of Generative AI for video progress in 2023

A16Z partner Justine Moore posted an excellent X thread on the advances of generative AI for video right before the end of the year.

As Justine’s timeline shows, the big players in this space are the large tech platforms: Google, Meta, Nvidia in the US and in China, Bytedance, Alibaba and Baidu. While Google and Meta shared they are working on AI Video generation, they’ve yet to release their products to the public.

The large tech players are well positioned to lead in this space given their access to deep learning talent, unlimited cloud resources and deep pockets. Google Brain recently open-sourced Phenaki, a video diffusion model that points towards YouTube’s internal capabilities. It is capable of generating a two minute AI generated video, using a series of prompts. Meta’s Make-A-Video builds on the recent progress made in text-to-image generation technology built to enable text-to-video generation. Many other paper in this space were published in 2023.

On the startup front, up and coming players like PikaAI and RunwayML, offer very short, but high quality video creation tools. And then, there are open source solutions like Stability.ai’s Stable Video Diffusion launched in November 2023.

Pika AI 1.0 – idea to video

RunwayML is targeting Holywood and AI filmmaking

Another tool worth calling out, generating videos from Images is FinalFrame. Here’s my video for “Panda bear surfing in Hawaii”

AI that makes everybody dance, using a pictur

Justine Moore tracked 21 products publicly available that enable users to generate AI video footage (you can check them out in this Google doc created by Justine). Note that the majority of tools generate very short videos (up to 16 seconds).

With sufficient data and compute, photorealistic, interactive video generation seems within reach. As an investor in generative AI/ interactive entertainment, this is an incredibly exciting time for the Generative AI video field as these models begin crossing the threshold of usefulness. However, significant challenges remain around bias, misinformation, and intellectual property, in addition to the yet unknown impact of incoming regulation. Also, investors have a tough question to ask: is generative AI a real platform shift, or are we in a bubble?

Addition (Jan 24th) – Google presents LUMIERE A Space-Time Diffusion Model for Video Generation. Demonstrate state-of-the-art text-to-video generation results, and show that our design easily facilitates a wide range of content creation tasks and video editing applications, including image-to-video, video in-painting, and stylised generation.

Update (Feb 17th): OpenAI launched Sora, a new text to video diffusion model that will enable the creation of videos from a prompt at 1080p quality. Sora can create videos of up to 60 seconds featuring highly detailed scenes, complex camera motion, and multiple characters with vibrant emotions. Currently the model is not yet open for public use, but the demo videos released seem high quality and coherent.

Example Prompt: “Beautiful, snowy Tokyo city is bustling. The camera moves through the bustling city street, following several people enjoying the beautiful snowy weather and shopping at nearby stalls. Gorgeous sakura petals are flying through the wind along with snowflakes.”

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The Future of Israeli unicorns in 2024

A billion dollar valuation, the Unicorn status was once the holy grail for many VCs and founders. At zero interest rates with a seemingly never ending flow of capital to fuel growth, Unicorn creation rate hit a peak in 2021, but fast forward 3 years and justifying a billion dollar valuation seems more like a liability. With the IPO window closed, growth funding severely dwindled and multiples down as a result of the public market, unicorns face tough choices in 2024.

The Unicorn’s struggle is a global phenomenon

There are a total of 1,224 unicorns globally, with a combined valuation of $3.7 trillion, according to CB Insights.

Battery Ventures Open Cloud 2023 report included this comparison chart of private software unicorns (1000+) vs. Software IPOs in the past 10 years (176) which shows the juncture many companies are in. With limited options for liquidity (M&A or IPO) and significantly less growth capital, unicorns face an uncertain future. They need to either raise, become profitable (default alive) or exit (M&A or IPO).

Lets examine these options:

Funding – Many of the unicorns minted in 2021 face difficulties in securing new investments at valuations comparable to their peaks, especially in a market skeptical of overvalued tech companies. In addition to the pricing issues, some of the biggest tech growth investors like Tiger Global and Softbank dramatically reduced their investments and are actively seeking to dump holdings in the secondary market at a steep discounts of 75% off or more.

M&A/ Exits – This situation is compounded by a narrowing window for mergers and acquisitions (M&A) and initial public offerings (IPOs). The M&A market has become increasingly selective, with potential buyers wary of high valuations that don’t align with company fundamentals

Private equity – In 2023 PE firms were seen deploying their capital in more cautious and strategic ways, reflecting the shift in market dynamics. Instead of purely chasing high-growth ventures, many PE firms focused on companies with robust business models and clear paths to profitability.

On the bright side, many expect the records amount of ‘dry powder’ available will start getting deployed more actively in the second half of 2024.

Spotlight on Israeli unicorns in 2024

Israel is home to 131 unicorns, over 10% of the global total. You can find the list of Israeli unicorns here and previous coverage on VC Cafe here. A year ago, it was already clear that approximately 50% of the Israeli unicorns probably cannot justify their valuation. While many unicorns struggled or disappeared amidst the “black swans” of the past few years (Covid, financial crisis, war), those that survived are now stronger and poised to benefit from their hard-earned lessons in 2024.

A recent feature by Calcalist’s Sophie Shulman and Meir Orbach analysed the underlying data of Israeli unicorns including annual revenues in 2023, the rate of growth, the number of employees today compared to the past, amount of funding, and runway expectations.

The Calcalist snapshot of the Israeli unicorn landscape is divided into six buckets:

The only way is up

I will take a cautiously optimistic view and say that if the war doesn’t escalate to a whole regional conflict (we aren’t out of the woods yet), 2024 has the potential to be a better year to Israeli unicorns and startups as a whole. There’s been a process of ‘right sizing’ in venture and many growth investors played it safe and waited for the market to bottom out.

Startups that survived 2023 had to make significant adjustments: reduce their burn, improve their margins and unit economics and learn to operate in a capital constraint environment. If indeed the venture market will stabilise in 2024 after a turbulent year, my hope is that the companies that come out of it on the other side are now stronger, leaner and better prepared for profitable growth.

As mentioned by Calcalist:

2024 will be a year of difficult decisions. But it also has the potential to be a good year for Israeli high-tech, of course, given that the security situation and the war do not escalate to the northern front and the reservists return to the offices. The high-tech companies enter 2024 more mature and experienced, because of what their management went through, from the interest rate increases and the suspension of funding, to the judicial coup, the protests, and now the war.

Those who survived the last two years learned a great deal about proper management and also saw the other and less pleasant side of investors and customers. From here, the only way is up.

Aside from the financial outcome for the investors and employees of Unicorn companies, of which probably many have their options value ‘below water’, unicorns play an important role in training future founders. Founder Factories, a study by Accel and Dealroom found that Israel ranked #1 in Europe with 181 spinout startups, with former employees that originated from 45 different unicorns.


One thing is certain: the true value of Unicorns lies in performance rather than inflated expectations. So rather than optimise for high valuations, startups and investors should focus on building sustainable business models, nurturing genuine innovation, and ensuring operational efficiency to navigate the market landscapes successfully in 2024.

Israel Generative AI predictions for 2024

In November 2022 I published a post titled “generative AI will go mainstream when it goes from playful to useful“, and I think you will agree that this transition is in full swing. Not so long ago, we were all posting AI profile pictures on social media, but very quickly we’re now seeing an emergence of generative AI tools and LLM applications to assist almost every role in the organisation, across industries and verticals.

2023 was the year generative AI went mainstream

The pace of advancement in generative AI has been astounding. In just over one year since ChatGPT was introduced in November 2022, it’s been the fastest consumer adoption tool to cross 100 million users, OpenAI reached $1.6 billion in annualised revenue, an a myriad of new companies were born, from open source LLMs to application layer startups that were able to move fast and do much more with less.

According to Crunchbase data, generative AI startups pulled over $50 billion in funding in 2023, led by megarounds into OpenAI, Anthropic, inflection AI and others.

According to GitHub, the largest open source repository (owned by Microsoft), developers are flocking to open source generative AI projects, and some entered the top 10 most popular open source projects by contributor count in 2023.

As an example, consider the advancement of generative AI in video in 2023:

Enterprise adoption is still in the early innings

While individuals and startups were quick to adopt generative AI tools, adoption has been much slower on the enterprise side. As Viola points out, there are 5 main barriers to adoption: Security, privacy, intellectual property, performance, and cost.

With that being said, corporates have generally leaned in to the generative AI trend and are currently working out their own strategy to implement generative AI and automation into their products safely.

As Thomas Tunguz points out in his 2024 predictions, AI is no longer a standalone category but rather a component of every product. This shift is particularly significant in the realm of Large Language Models (LLMs).

Much like mobile technology became a de facto part of every startup, AI is no longer a category but the core or a component of every product. It’s still early days with LLMs, and there’s a lot of work to do; however, LLMs have already wholly transformed data in many ways, and innovations with data will continue to command VC investment. Likewise, venture dollars will still funnel into startups in the space. LLMs have driven an increased demand for data, caused a complete architecture change inside companies and changed how data is manipulated. As the technology evolves, we’ll continue to see an increase in new data products and data teams.

Theory Ventures 2024 predictions

Israel remains one of the major AI hubs globally

In terms of funding, it’s safe to say that Israeli generative AI startups have yet to live to their full potential. Overall, Israeli startups raised $7.3 billion in 2023, the lowest amount since 2018 and a 60% decrease from 2022. The judicial reform proposed by the government gave international investors jitters and international venture investment further slowed down due to the war against Hamas in Q4 2023. It’s important to put this in context, as US investments also declined by 35% and UK investments dropped by about 40%.

According to IVC online, Israeli GenAI companies raised $5.57 billion in 390 deals between 2014 and 2023. I think the numbers are a bit fuzzy, since there are companies that incorporated generative AI into their products, such as MyHerritage, which aren’t GenAI startups per-se but are included in the count.

Nevertheless, In the past 3 years, Israeli generative AI startups attracted over $2.2 billion in funding, placing Israel 3rd globally in generative AI capital raising following the US and China, based on a recent report on Generative AI startups in Israel, created by our colleagues at Viola Ventures.

This is consistent with our own findings at Remagine Ventures, published in Calcalist on September 2023, which calculated that Israeli generative AI startups raised over $2.5 billion in the last 5 years, and the number of Israeli startups more than doubled in this space more in the past 8 months.

The Remagine Ventures Israeli generative AI startup landscape (published September 2023) – scan the QR code to add a company

2024 will be a sink or swim for generative AI startups

While generative AI continues to be red-hot, investors are deploying capital with caution. The fear of commoditisation, questions about copyright, impending regulation, platform dependencies, and costs remain valid concerns in 2024.

While it’s still anecdotal evidence, some of the early ‘GPT-wrappers’ application layer startups have flamed out relatively quickly, leaving investors with a bad taste. Others, may have raised funding at high valuations during peak hype, and might face difficulties raising up-rounds without significant traction. The latter is true for all startups, not just in generative AI.

In July 2023, I’ve outlined a number opportunities for Israeli GenAI startups. To a large extent, they are still valid, but the progress made by OpenAI and open source has shuffled the deck slightly and I would add the following 3:

  1. Tools for Open source LLM adoption – while OpenAI remains the ‘IBM’ of LLMs, the attractiveness of Open Source LLMs is on the rise. The downside of OpenAI is the cost, platform dependency and limitations of its API. Open source LLMs have been improving at a rapid pace, have an active developer community and can be an attractive alternative, if managed properly.
  2. Smaller, vertical models – we still measure LLMs by the number of parameters, but it’s unreasonable to expect one model to do it all. For example, a customer service oriented use case for a specific product can be done with a smaller model, trained specifically on that use case. It’s expected that smaller models will also suffer from less hallucinations. Startups enabling this while still providing security, privacy, copyright, etc might be a good candidate for enterprise adoption.
  3. Automation and workflow integration in niches – imagine if IFTTT was tailored for every manual, repetitive task in the company. For example, Jasper.com is a copyright tool serving marketers. GPT-4 can of course provide the copy, but the copy generation is only one of many steps in the job of a marketer. It needs to be formatted to ads, connect to hubspot, run A/B tests and choose the top performer, connect the text to relevant images, etc. OpenAI will compete in this space with its shiny new app store.

After a tough 2023, I expect 2024 to be a bumpy year for Israeli generative AI startups. But I’m generally optimistic. Companies can do more with less with generative AI, and Israel remains a major AI hub in terms of talent, capital and ideas.

For additional AI predictions and startup opportunities in 2024, I recommend the following resources:

  1. 10 predictions on the future of AI – Data Driven VC
  2. AI in 2024 by Sequoia
  3. Where VCs are betting in 2024
  4. The state of generative AI in the enterprise – Menlo VC
  5. What will happen in 2024 – Fred Wilson
  6. 10 AI predictions for 2024 – Radical Ventures
  7. 5 M&A observations for 2024 – Bessemer’s Jannelle Teng
  8. Optimistic Nihilism for 2024 and trends of consumer spending – Rex Woodbury
  9. Themes for 2024 – Wing Ventures
  10. Deloitte 2024 TMT predictions

18 years of VC Cafe

“The best time to plant a tree was 20 years ago. The second best time is now.”

– Chinese Proverb

Happy New Year! I can hardly believe it’s been 18 years since I first launched VC Cafe back in December 2005! Reflecting on this journey, the tech world was a completely different landscape back then. Facebook was just stepping out of college campuses, the revolutionary iPhone was still in the realm of Apple’s future plans, and burgeoning concepts like big data and cloud computing were just starting to emerge. I’ve written on the VC boom (when money was cheap and due diligence was minimal) to the major reckoning that followed and we’re still yet to see its full impact. It’s absolutely astounding to ponder the leaps and bounds we’ve made in this period.

During these nearly two decades, I’ve had the extraordinary privilege of being a front-row witness to Israel’s incredible startup scene. From licking its wounds following the dot com burst, Israeli entrepreneurs have been making indelible marks across a multitude of industries. I’ve seen the explosion of new unicorns created, from cybersecurity pioneers to AI disruptors and billion dollar revenue gaming startups. While it is going through a challenging period now, Israel continues to stand as a powerhouse of innovation and technology, ranking 6th in global innovation according to Global Finance. Mark my words – Israeli tech will continue to deliver #nomatterwhat.

But VC Cafe’s reach extends beyond the Israeli tech scene, providing me with a unique lens into the evolution of global tech megatrends. The contrast is stark when I think about the state of mobile technology back in 2006 compared to its dominance today, or the explosive growth and influence of social media and most recently, AI. This is a game changer in so many levels, one I started writing about in 2019 (when we at Remagine Ventures made our first investment into HourOne). Back then, we called it synthetic media, and over time we evolved to calling it creative automation and now you’d have to live under a rock to not know about generative AI.

While we are all attracted to success stories, it’s been equally interesting to learn from failures, like the rise and fall of metaverse (mostly due to too high expectation and unfinished tech), creator economy, VR, web3 (NFTs and ownership of the Internet) and various crypto scandals. These stories are not fully written yet, and we should not write them off, but their timeline has certainly shifted.

I started VC Cafe from a real curiosity about the bourgeoning new medium of blogging back in the day (see my 15 year VC Cafe anniversary post), and from a desire to help shine a positive light on Israeli startups. That curiosity and desire haven’t subsided over the years. With time, my focus changed from reporting on the news, to focusing on writing about the sectors and trends I’m particularly excited about or areas we invest in with Remagine Ventures, a fund I co-founded with my partner Kevin Baxpehler who’ve I known for over 20 years. And while it’s not always been easy to write or keep it going, I’m proud of all that I’ve accomplished with it. I look forward for what the future of tech, and in particular, Israeli tech, has to bring, and hope to be able to continue writing about it in the next 18 years! Thank you for your support.

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