Pre-seed investments in start-up companies are the first money invested in entrepreneurs, enabling them to establish a new start-up.
They are challenging transactions to measure and document, these are investments in small volumes, which pass under the radar and are not reported to research bodies or the media.
For the first time, a report is published on the state of pre-seed investments in Israel, reviewing the activity of the past year.
The report shows that since the outbreak of the war, 56% of the angels (private investors) did not invest at all during the last quarter of 2023, so also 55% of the funds stopped pre-seed investments during that period.
The report was produced by the Foundation and the Fusion acceleration program, and is based on data provided by 54 active angel investors who shared information on 190 transactions, and 31 seed and pre-seed funds investing in Israel, which shared information on 110 transactions.
This is in addition to internal information gathered at Fusion in the last 12 months, documenting the activity of more than 900 Israeli teams in the pre-seed phase.
Amit Schechter./Bar Cohen
As part of the report, we put a spotlight on a category that does not receive a stage in the analysis of the startup industry, pre-seed rounds in the amounts of hundreds of thousands of dollars and up to 1.5 million dollars.
Every year, hundreds of Israeli teams raise 'under the radar' pre-seed rounds, to use the funding to produce a proof of feasibility for the product they want to bring to market, and reach initial sales.
This initial activity serves as a substantial signal to the larger institutional funds, which are examining further investments in the project.
That's why we saw in Fusion the importance of presenting for the first time a picture of the pre-seed investment activity.
main findings
The Israeli startups are moving to Delaware
following the political and security instability that the State of Israel has encountered in the past year, about 80% of the newly opened companies were registered as an American company in the state of Delaware.
The move should worry the Israel Tax Authority, which will not be able to tax the companies when selling the startup.
It is more difficult than before to raise capital based on an idea and a presentation.
The survey shows that 54% of funds and 71% of angels invested in ventures only after proof of feasibility (PoC) or in more mature stages.
The Fusion report also shows that 57% of the angels' investments last year were under $100,000 per transaction, and 35% of the angels who wrote checks invested less than $50,000 per transaction.
In contrast, 65% of the funds reported investments between 500 thousand and 1 million dollars per transaction.
Startup companies receive low value investments compared to previous years
65% of the angels did not invest in more than 2 startups in the past year and 45% of the funds invested in 2 to 4 companies in the past year.
In addition, 29% of the angels and 55% of the funds reported that new startups raised capital according to a low value compared to deals made in new companies the year before.
Most investors expect the company's value to reach 15-20 million dollars in the seed round.
Angel investors tend to invest as a group
72% of them invested alongside 3-4 other angel investors, and avoided being the only investor in the company.
Only 40% of them are interested in leading the round and only 3% will not invest at all if they are not leading.
On the part of the funds, 26% invested as a single fund in the round, and 55% of the funds added 1-2 additional funds to the round.
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In conclusion,
The survey shows activity in a year full of challenges combined with each other: financial crisis, social crisis and security crisis.
Despite this, we see Israeli stability and optimism, when investors continue to invest and entrepreneurs continue to establish companies.
The stoppage of investments that we saw immediately after the seventh of October also characterizes the market that we faced as a nation, and today we see the transactions returning to the market.
The survey makes it possible to learn for the first time about the structure of the pre-seed investments, a field that was conducted according to the accumulation of knowledge by each investor privately and exposure to limited activity of the circle closest to him.
Which makes it very difficult for the parties in transactions to maneuver correctly, both investors and entrepreneurs.
Now it is possible to compare the activity in the field to what is customary in the industry.
The performance comparison allows for more correct decision-making by both parties in the transaction and adjustment of the structure of the transaction to market requirements.
The Fusion Fund and Acceleration Program invests in Israeli startups in the pre-seed stages and manages approximately $30 million.
The fund was established in 2017 by Guy Katsovich and Yair Vardi, has made 120 investments in Israeli start-up companies in less than seven years, and makes 20-30 new investments a year.
The portfolio companies include: Agora, DigitalOwl, Base.ai, Innplay Labs, Hoopo and more.
Over 35% of Fusion's portfolio companies are led by female founders.
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