As Israel’s startup ecosystem matures, one of the key components of future growth will be sources of capital. Capital helps grease the wheels of commerce and is a lynchpin in Israel’s success with its startips.
But those sources of capital are changing…
Israel VC 2.0
Israel’s VC industry has experienced fantastic growth over the past decade.
As the nature of startup investing has changed — smaller, quicker rounds with smaller exits — Israel’s venture capital industry has had a hard time adapting.
The emergence of companies like OurCrowd, a crowdfunding platform to invest in Israeli startups are arising to fill the gaps left behind by traditional funding sources, some of whom are shuttering funds and struggling to raise new ones.
VCs are just part of the picture
If you look at financing business as part of a greater cycle, VCs and their funds address the early-stage growth companies. That’s just part of the financial picture.
But what happens when these firms grow up and require different sources of capital?
Israeli hedge funds are starting to emerge.
Israeli hedge funds by the numbers
Israel has had a nascent hedge fund industry for years and now, we’re beginning to see signs that these hedge funds are growing up.
From a recent article on Bloomberg, Israeli hedge funds are on the ascendance:
[bra_blockquote align=””]“Israel doesn’t have any natural resources — it’s all about brain power,” said Keinan. “There is nothing to keep the hedge fund industry from expanding. It is happening.”[/bra_blockquote]
Israel is attracting hedge funds that are formed from domestic sources of capital as well as carveouts of global funds that open an Israeli office.
In fact, from Tzur Capital’s hedge fund industry survey:
- assets in Israeli hedge funds grew 30% in 2011 and an additional 10% in Q1 2012
- Israeli hedge funds (“IHF”) have consistently outperformed the HFRX Global Hedge Fund Index since the financial crisis (2009: IHF +33.7%, HFRX +13.4%; 2010; IHF +17.6%, HFRX +5.2%; 2011: IHF +7.9% HFRX -8.9%).
The Bloomberg article talks about growth and the ability to hire smart analysts and lease office space for about 1/2 what it would cost a fund in London.
Hedge funds typically provide liquidity for public markets, can drive demand for new public offerings, and dabble in the latter stages of private equity/venture capital spectrum.
Growth in Israel’s hedge fund industry signals a maturation in the entire business ecosystem for the Startup Nation and that should bode well for startups and larger companies alike.