As we end 2024, we want to provide our Israeli founders with a few thoughts for the year ahead. The global venture capital ecosystem has experienced a downturn, and by the end of Q3-2024, total funding reached $216bn, reflecting a 16% year-over-year decrease. However, Q4-2024 has brought optimistic expectations, with a 20% increase in total funding vs the prior year (Crunchbase).
Despite these challenges, sectors such as AI, Fintech, DeepTech, Defense Tech, and Climate Tech have shown significant growth at the expense of other sectors. For example, funding for Generative AI startups nearly doubled to $70bn globally in 2024, signaling a strategic shift toward transformative technologies (Pitchbook data).
In Israel, the startup ecosystem has demonstrated remarkable resilience amid adversity. Capital raised during the period Q1-Q3 2024 rebounded on a year-to -year basis (SNC), and Israel is on track to end up higher than 2023 largely driven by a few Cybersecurity fundraises (e.g. Wiz), yet still significantly lower than 2019-2021 years.
Whilst this growth reflects the unwavering resilience and adaptability of Israeli founders and their teams, one should understand that the number of companies that fundraised is significantly lower than prior years, which reflects the high bar being set by investors. The amount of VC money available to new startups in the early stage has reduced significantly and thus competition for getting funded has increased.
What “Founder-First” / “Founder Friendly” means to us:
Many, if not most, early stage investors believe the Team trumps everything else, and they decide on an investment based solely on the team. This makes for great marketing by these investors and the misaligned slogan that they are “Founder-First” or “Founder Friendly”.
Our view, at Entrée Capital, is a bit more nuanced. It’s about the combination of the Team and the proposition it presents, which means the potential of the opportunity. This becomes far more skewed towards the “opportunity” at later stages, where real metrics, market sizes etc count. Hence the Entrée formula, where each “T” has a natural weighting (addition, multiplication or exponent):
Now, in the ordinary lifecycle of a business, these “T”’s change. Founders leave, professional CxO’s are brought in, Technology becomes more relevant (i.e. Product), and so on. And so, when founders consider their company, and their role within that, they should always subscribe to the idea that “Form follows Function”. The best founders focus on the results of their company and their people, and they morph over time – the successful ones build great businesses that they continue to lead.
For us, being “Founder Friendly” means telling it like it is, being able to debate (and at times disagree on) key challenges and being honest and transparent rather than telling you what you want to hear. Remember, as a founder, that your role, and ours as an investor, is always to put the company first, as both our fates are inextricably linked.
Some tips for the year ahead:
- 🎯 Focus, focus and…focus: Focus on your startup’s core strengths and value proposition. Streamline operations to boost efficiency and allocate resources to areas with the highest impact. Do more with less. The next financing round is not obvious and will take longer to raise, if at all..
- 🤝 The ABC (Always Be Closing) rule: One of our fundamental rules. Close new revenues, no matter what – compromise on pricing to get deals through the door and use a ‘land and expand’ approach.
- 👀 Keep your eyes on the numbers: Financial discipline is critical. Regularly revisit your budget and projections to align with your runway goals. Focus on key metrics like burn rate, revenue growth, and customer acquisition costs. Track these metrics diligently to identify trends and make timely adjustments. Remember, data-driven decisions are your best ally in navigating uncertain times.
- ⨑ Form follows Function: Figure out the best solution and then how you build around that, rather than starting with people or product and trying to fit those to meet some narrative.
- 🤖 AI in the box: Everything you do in your product needs to be AI-enabled (if possible). Don’t wait for these innovations. Think ahead. The same applies to your business. AI-everything! SDR – start using AI, Support- start using AI… you get the point.
We believe that 2025 is going to be a surprising and successful year for those who understand how to create and leverage their competitive advantage, while expanding their customer network and maintaining high retention. Challenges will always be present, but the resilience and passion to shape a better future are what make you as a founder thrive.
Have a great new year!
