Israel's unicorn hunters

• Published date: 18 July 2021
• Author: Ofir Dor
• Date: 18 July 2021

It's definitely not easy to spot a start-up with unicorn potential early in the game. A 2015 study published by CB Insights reviewed the fate of 1,405 start-ups that had raised initial funding six years earlier. The study found that only 1.28% of those start-ups eventually became unicorns. This proportion ratio should probably be reexamined in this current period of unprecedented inflation in tech company valuations, but even in boom times like these, only one among dozens of start-ups that raise initial funding will ever achieve coveted unicorn status.

Hunting for potential

According to the "Globes" survey, two Israeli funds scored the highest in identifying Israeli unicorns: Viola Ventures and Aleph. The portfolios of these two funds include six start-ups that reached valuations of over $1 billion in the last two and a half years. Aleph, it should be said, achieved this figure in far less time than Viola Ventures. Viola is a long-standing fund founded in 2000, while Aleph was established only in 2013.

Obviously, early investment in start-ups that will become unicorns later on requires a good eye for identifying potential that others do not see. Israeli high-tech is full of stories about start-ups that were rejected by fund after fund, until one came along that took a chance and later reaped the rewards. Roy Mann, one of the two founders of monday.com, has said that his start-up failed to raise money from almost every investor in Israel, until he got to Avi Eyal from Entrée Capital. Last month, monday.com went public on Wall Street at a $6.8 billion valuation

Identifying potential, however, is not always the key issue. In many cases, and especially when it comes to experienced entrepreneurs with successful records, the significant element is the ability to win the investment deal, and beat the competing funds also striving to inject money into a venture with potential. Winning can result from a better financial offer, speed of response, and also the ability to connect with entrepreneurs and persuade them of the added value that the fund can provide.

The competition for deals is, of course, not only between Israeli funds, but also against foreign funds. Previously, Israeli venture capital funds were known to have the advantage of early identification of start-ups thanks to proximity, but this has also changed, as foreign funds, many of which operate offices in Israel with local partners, have begun investing in the initial stages.

In fact, a review of the investors in a series of...