VC funding drop spawns acquisition prospects for Mideast startups

The steep decline in venture capital investment across the Middle East and North Africa has turned many tech startups into ripe candidates for acquisition, the head of fund-tracking platform MAGNiTT says.

Watching the industry slide for the 16th month in a row, Philip Bahoshy, CEO of Dubai-based MAGNiTT, tells The Circuit that the bottom may be in sight.

“This is a great opportunity for potential M&A activity where international investors may encourage their portfolio companies to acquire companies in the region for expansion, or startups and corporates acquiring for market share,” Bahoshy said. 

“Valuations are beginning to come down, making it a lot more appealing for investors, especially those that have dry capital.”

Emerging venture markets – a group of territories that includes Africa, the Middle East, Turkey, Pakistan and Southeast Asia – raised $3.5 billion in the first six months of 2024, marking a 34% decline compared to the first half of last year, according to MAGNiTT’s Emerging Venture Markets Venture Investment Summary.   

Saudi Arabia led the region in VC funding, coming second only to Singapore in emerging markets and raising $412 million, a 7% drop compared to the same period last year.  

Despite a decline in almost all VC metrics in the first half of 2024 – funding, deal count and exits – Bahoshy said he has noticed some signs that may signal a turnaround is near. 

The overall decrease in venture investing has tracked alongside a growing preference for early-stage rounds, indicating a trend that mimics more developed markets, Bahoshy tells The Circuit.

“Investors globally continue to look for opportunities in venture as things potentially look to pick up, especially at [the] early stage,” Bahoshy said, adding that the number of active investors in MENA is on the rise. 

MENA funding rounds fetching check sizes of $1 million to $5 million have tripled in the last several years, rising from 15% in 2020 to 45% in the first half of 2024.  

This shift indicates a growing focus on nurturing emerging startups. Bahoshy suggests that if this pattern holds, “funding is likely to pick up and hence the inflection that we may be bottoming out in the next two quarters.” 

He points to relatively low deal counts in the wider MENA region, but says Saudi Arabia and the UAE will continue to attract deals.  

The kingdom saw a 3% drop in funding rounds to settle at 63 in the first half of the year compared to the same period last year. The UAE saw an 11% increase and 83 transactions. 

Bahoshy expects more of the same as the year goes on, with room for growth if – and it’s a big if – interest rates come down.

As the focus shifts to early-stage ventures, valuations will become more realistic and based on fundamentals like profitability, he added.  

Investors are now focused on deals with strong foundations, good product-market fit and productive founding teams. Unlike a few years ago when investments were made with less due diligence due to FOMO and technology hype cycles, investors are now making targeted bets, particularly at early stages, according to Bahoshy.

The willingness of Gulf sovereign wealth funds to back venture capital firms looking to invest in the region is another potentially crucial factor in venture funding’s turnaround.  

Bahoshy notes investor appetite remains cautious. “People are still concerned about the economic environment. A lot of people are looking at the geopolitical situation. Many are looking at what the political situation is globally, whether it’s in the U.S., Europe, where we’ve just seen two elections take place,” he explained. 

He believes that a reduction in interest rates, which would lower the cost of capital, might stimulate late-stage funding.  

“If things begin to pick up in the wider economy, globally and here in the region, we’ll see similar to what’s happening in the U.S., at least quarter on quarter growth in funding,” he said. 

While transaction numbers might not rise, Bahoshy has found his silver lining: he expects investors to “place bigger bets” on newer startups – creating a larger pipeline of companies on the rise. 

Global Ventures’ Sweid says portfolio firms are pivoting to AI

The state of the venture capital market — and how it is being reshaped by artificial intelligence — was top of the agenda on Thursday, the final day of the Qatar Economic Forum in Doha, with partners from Global Ventures, Golden Gate Ventures and Alpha Wave Global sounding off on a panel.

“Our founders, they’ve struggled the same amount they’ve always struggled,” Noor Sweid, Co-Founder and Managing Partner of Global Ventures, said with a laugh.

The Dubai venture capitalist was commenting on the state of venture funding that has seen deal activity and check sizes plunge globally, as she emphasized that the region’s start-ups — for whom she is a vocal champion — are no strangers to dealing with challenges. Startups tend to be cash flow positive faster and demonstrate good business fundamentals because they are used to being in a cash-constrained funding environment, Sweid said.

Sweid also noted a trend toward Global Ventures’ portfolio companies pivoting to integrate AI tools, adding that of the more than 60 startups the six-year-old Dubai VC has backed, 40% of them could be considered AI firms today.  

Golden Gate Ventures Founder Vinnie Lauria, speaking alongside Sweid, said the Singaporean fund is eyeing B2B AI investments and said there is a strengthening corridor between his portfolio companies from Southeast Asia and the Gulf, as they find a foothold in cities like Abu Dhabi and Riyadh to access the regional market.  

Golden Gate, founded by Silicon Valley natives, announced its first $100 million MENA fund on Wednesday with $20 million in commitments from Al Khor Holding, Al Attiya Group and Sheikh Jassim Bin Jabor Al Thani. 

Rick Gerson, Co-Founder and Chairman of U.S. asset manager Alpha Wave Global, noted the $1.5 billion Microsoft investment in Abu Dhabi AI firm G42 as the “first large-scale demonstration of AI’s success in the region.” In 2022, the Miami Beach-based firm took on the co-management of a $10 billion VC fund with Abu Dhabi’s Chimera Capital. Gerson also noted the significant amount of exposure Alpha Wave has in India, adding that the Middle East represents a massive, largely untapped opportunity for the firm’s portfolio. 

SVC emerges as bedrock firm in Saudi Arabia’s investment push

Saudi Venture Capital Co. is emerging as the driving force behind Saudi Arabia’s meteoric rise in VC investing. For the first time, the kingdom clinched the top spot last year as the most active investor in the MENA region, a sudden challenger to more mature ecosystems in the UAE and Egypt. VC capital pouring into Saudi startups has surged over 20x between 2018 – the year SVC was formed with backing from the National Development Fund – and 2023, as more deals have been done and check sizes have grown. 

A new report from SVC shows it has invested in 40 funds that have in turn invested in over 700 startups and SMEs so far. Total committed investments have reached over $700 million since its inception and total investments including partners are estimated at $3.6 billion. “This is only the beginning,” Dr. Nabeel Koshak, the firm’s CEO, said in the report. Crown Prince Mohammed bin Salman sees startups and entrepreneurship as linchpins of his economic diversification drive under the banner of Vision 2030, drivers of innovation and job creation. 

SVC is on the rise amid a global slowdown in private capital investing. “Q1 was in no way ecstatic,” Philip Bahoshy, CEO of funding data platform Magnitt, said this week. “Though there were a few big wins, our latest numbers report a decline in almost every metric.” Bahoshy will host a public meeting next week with Sharif El-Badawi, CEO of Dubai Future District Fund, to discuss the state of venture capital in the region and what may lieahead for the rest of the year. 

500 Global’s Courtney Powell predicts accelerated M&A activity in 2024

DAVOS, Switzerland – Courtney Powell, COO and managing partner of San Francisco-based venture capital firm 500 Global, came to the World Economic Forum in Davos this year with a message for investors: Watch out for the Middle East and Africa.

Before heading out to meet up with her old pal and OpenAI boss Sam Altman, she shared in an interview with The Circuit how 500 Global navigated a tumultuous 2023, her predictions on exits and deal appetite for 2024 and her best advice to investors looking to make moves in the Gulf. 

Powell, who moved to Riyadh three years ago, is a veteran investor in emerging markets and one of 500’s MENA-focused funds has raised $43 million so far. The parent fund has $2.7 billion in assets under management. This interview on the sidelines of the Davos conference has been condensed and edited for length and clarity.

The Circuit: This is your first trip to Davos. Why did you decide to come this year and are you here for 500 Global or are you wearing your 500 Global Middle East hat? 

Courtney Powell: Always global… We’re really trying to get the message out there with a report that we’ve just released: a look at the top 30 most compelling venture markets. And the message behind that is that entrepreneurs should absolutely be accelerating GDP and economic growth. And so that’s the message that I’m typically talking about these days. 

TC: What are the hotspots? 

CP: The Middle East is going to continue to be an economic powerhouse moving forward. But Africa as well. So we liked what we’re seeing coming out of Senegal, Nigeria. And Rwanda is starting to pick up their support of entrepreneurship. Southeast Asia also. 

We launched our first fund in Southeast Asia, I think, in 2013 and we had six unicorns out of that first fund. So we definitely are seeing a move into the later rounds now, seeing more coming from Vietnam, Cambodia, and some of the newer markets that are taking shape, although we already have two unicorns out of Vietnam. So yeah, you pick a country I can talk about. 

TC: I want to talk more broadly about 2023, a tough year for VC. How did you navigate and how are you feeling about 2024?

CP: I think as an entrepreneur, what we’re hearing from our portfolio and witnessing was the fact that you had three or so years where capital was really abundant and I think decisions were being made pretty quickly. And 2023 was definitely a reckoning in the sense that all of a sudden people started talking about unit economics, people started talking about the exit market. 

So for us, having been investing for over a decade now, we’ve seen the ups and downs. We were fortunate not to be too aggressively affected by that and we’re just really frank with our portfolio in terms of “time to stay disciplined. Now, if you have the cash in the bank, it didn’t matter if you had growth coming from organic growth or you can continue to afford to buy growth for whatever reason and be one of those folks to move ahead. But by and large, it was a little bit of a more austere time. 

And then I think on the venture side, 500 was in a good position because we have a number of funds with a lot of diversification amongst the countries we’re investing, the stages we’re investing in. So we didn’t experience too much of an issue. But I think what we saw in some of the markets, especially where we’re training emerging fund managers, I think emerging countries struggle. Fundraising is really tough. And I think if you haven’t shown [returns to investors] or you just don’t have a track record, it’s a very difficult time. 

TC: And you are currently raising a MENA-specific fund. 

CP: We have a variety of funds right now. We are limited actually, we’re really regulated about what we can say. Suffice it to say that we will continue to raise funds, continue to deploy in the Middle East in particular, we have active seed funds right now to Series A. And even into later stages because we’re able to invest out of our global funds into the region. 

TC: That’s a real issue right now, or it always has been in the region. Seed capital is widely available. And even the big check sizes, of course, are available because you have the sovereign capital. It’s that middle abyss.

CP: That’s music to my ears whenever I hear people articulate that accurately. 

We’ve made almost 400 investments across the MENA region. And we have 14 or 15 companies in our portfolio, that are valued at over $100 million. So we definitely see the need for capital that goes even beyond what the sovereigns are able to provide. I think that is a gap. There are a number of funds that I’m aware of that are coming to market, actively fundraising to be able to make that leap, which I’m really glad to see. I was hoping to see a little bit more international interest. 

TC: So far the exits we’ve seen in the region have been M&A, a couple SPACs. So 2024, are you thinking more of the same?

2024 is actually going to be an even more aggressive M&A market. I’m already catching wind of that. I think there will be a few big deals announced pretty soon. M&A continues to be a really strong exit pathway. However, I will say that there are six or seven companies across our own portfolio that we think have IPO potential. But I think that’s going to be in the next few years, not necessarily imminent. 

I see a lot of people talk about, oh, there’s going to be 1,000 unicorns. We tend to take a much more conservative approach, because we’ve just seen the entire pipeline now since 2018. Unless they’re seeing deals that I’m not,I struggle to see that. However, one other point you’d like to make about the exit markets, that’s Tadawul [Saudi Arabia] and the ADX [Abu Dhabi], I think have a very, very strong chance of becoming even more popular markets to list particularly coming not just the region, but Africa and Southeast Asia, and even Eastern Europe. 

Saudi in particular, I think what they’re making their Tadawul to be able to enable foreign capital to come in, hopefully see some dual listings in the future. You no longer have to simply target the exchange in London or New York. We’re really going to see a shift over the next five to 10 years where the Middle East will be strong. 

TC: Last question, what advice do you have for people thinking about moving to the region? 

CP: My advice for people in our industry moving to the region is it takes a year to form a thesis about the region, a year to figure out why you’re wrong and a year to fix it. It’s really easy to come in and kind of think you know what’s what. And, there’s a lot of expertise among financiers, and venture capitalists in the region, and there’s a lot to learn. So I hope that you come in with really just listening and trying to understand why the region has evolved the way it has and look at themselves as a contributor. They’re not creating anything. There’s already a vibrant, strong community of entrepreneurs and venture capitalists. 

Gulf venture financing held steady in 2023 amid cash drought in U.S., Europe, Israel

ABU DHABI, United Arab Emirates – Saudi Arabia has come out on top in a final reckoning of venture capital activity in 2023, as the kingdom continues to lure startups from innovative competitors in the Middle East and Africa.

Including debt financing deals, which propped up much of the deal activity last year, investment in Saudi Arabia-based startups grew 160%, while debt-free investment rose 48% compared to 2022, according to a new report from UAE startup platform Wamda. 

“Debt financing typically rises when investors become hesitant and, given what is happening both globally and regionally, I expect it to grow this year too,” Triska Hamid, editorial director at Wamda, told The Circuit. 

Gulf investors poured a steady flow of cash last year into tech companies, bucking the global pullback from startup funding in the midst of economic slowdown and regional conflicts. Financing from the MENA region rose 1% to about $4 billion in 2023. By contrast, seed funds for startups plunged 60% in Israel, 44% across Europe and 30% in the U.S.

Look at how capital was raised in MENA more broadly and it’s a less rosy picture: nearly half of total fundraising came through debt financing in 2023. Equity accounted for $2.2 billion across 488 deals, down 36% from the $3.45 billion raised in 2022 and a steep decline from the nearly 800 deals done last year, according to Wamda.  

Still, this year begins on an upswing as the total amount raised by start-ups in the region in December stood at $456 million. That excludes the major $700 million Tabby debt deal with J.P. Morgan, an 18% jump from November and a 253% leap compared to a year ago. Most of the action was concentrated in Saudi Arabia and the UAE.

Fintech has attracted most of the funding in the region over the last few years, and that trend has continued: startups developing tools in financial services have accounted for over half of the total amount raised, including debt. However, this was down to two companies: “Buy now, pay later” players Tabby and Tamara, which together raised over $2 billion in debt and equity. They accounted for just over half of the $4 billion raised last year.

Early-stage investor Flat6Labs, which has a presence across MENA in Cairo, Jeddah, Abu Dhabi, Beirut, Tunis, Bahrain and Amman, was the most active investor last year. U.S. VC fund 500 Global, whose COO Courtney Powell has relocated to Riyadh, was the runner-up.

Other trends to watch in the year ahead: 2023 was another dismal year for female founders. Out of the 583 startups that raised funding, just 52 were founded by women, who collectively raised less than $19 million, or less than half a percent of the total.

Egypt has been struggling since the war began in Ukraine, on which it relies heavily on grain imports. Its currency has been devalued, the economy is struggling and several of its startups have relocated their headquarters to Saudi Arabia. The number of startups that managed to raise investment in 2023 halved compared to the year prior.

Early-stage Israeli tech startups raised $7.3 billion in 2023, the lowest level of seed financing since 2018. The Tel Aviv-based Start-Up Nation Policy Institute, which published the annual survey, attributed the drop to three factors: the global economic slowdown, Israel’s internal conflict over changing its judicial system and the Gaza war.

Israel’s most active VC firm aims to triple head count at Abu Dhabi AI office

ABU DHABI, United Arab Emirates – Israel’s most active venture capital firm is looking to triple the head count at its Abu Dhabi office dedicated to artificial intelligence development as it ramps up efforts to develop tools for customers in fintech, energy, health care and government. 

The UAE venture, Integrated Data Intelligence, is a subsidiary of Jerusalem-based OurCrowd, the first VC firm to register in the UAE after the Abraham Accords were signed three years ago and with $2.2 billion in committed capital.

IDI, which is less than a year old, is the commercial byproduct of OurCrowd’s decade-long, $100 million investment into developing a new kind of investment platform that has made it among the most prolific VC investors in the world. The platform has allowed its 260,000 investors to invest in over 370 portfolio companies from almost every country in the world while adhering to local laws in those investors’ respective jurisdictions. 

“That’s a lot of data,” Sabah al-Binali, executive chairman of OurCrowd Arabia, told The Circuit.

The startup, which was seeded with an initial joint commitment of $60 million from OurCrowd and the Abu Dhabi Investment Office (ADIO), is the venture firm’s first R&D center outside Israel. It continues to develop AI for OurCrowd but is now using its technology as a blueprint for other platforms that will benefit by applying AI to their own data. The aim is to increase business efficiency, reduce costs and improve outcomes, Jon Medved, OurCrowd’s founder and CEO, wrote at the time the company was launched.

IDI has 16 people from 15 countries working in the Al Maryah Island office at Hub71, the emirate’s startup and technology campus, with two employees from Israel and two recruited from the first graduating class of Abu Dhabi’s AI research university. IDI is looking to grow to 50 employees by the end of 2024.

The company’s presence in Abu Dhabi is a reflection of al-Binali’s enthusiasm and optimism for a productive relationship between Israel and the UAE — and his almost dogged pursuit of finding ways to work together that go beyond the stereotype that Israel is a technology hotbed and the Gulf is a destination market to raise capital.

“In Israel they have a huge supply of AI talent but the demand for AI talent far exceeds that,” al-Binali said. 

“So I raised my hand, and I said, ‘What about Abu Dhabi?’” 

“It’s easy to attract talent here, because getting a visa is like this,” al-Binali said while snapping his fingers, adding that his understanding of the market and government initiatives helped to get the business set up.

Al-Binali, a Princeton graduate with a Ph. D. from Columbia University, worked for over 20 years in investment and financial services spanning the UAE and Saudi Arabia, including the acquisition of a Saudi investment bank by Credit Suisse and the 2012 sale of Zawya, a Dubai news service, to Thomson Reuters. 

With the Abraham Accords he sees an unmissable opportunity. He joined OurCrowd within a month of the landmark U.S.-brokered agreement and has been a connector for the firm ever since.

It was al-Binali who helped OurCrowd gear its investing platform toward an AI future. He recommended Hasanat Dewan, whom he met while they were both postgraduate students at Columbia in New York, to the role of chief innovation officer in 2021. 

Dewan had held posts in technology transformation for E*TRADE, BNY Mellon, Russell Investments, Merrill Lynch and Deutsche Bank. Today he’s based in Abu Dhabi as CEO of IDI. 

And it is a good time for OurCrowd to be diversifying into technology development amid a global slowdown in venture capital activity. 

True to form, al-Binali sees the current environment as an opportunity. 

Gulf startups traditionally have had strong access to early-stage capital, but later-stage investments – which typically command larger check sizes – are harder to come by. Venture capital firms tend to be smaller and more conservative. 

“Israeli VCs are much more comfortable at the higher risk segments and deploying that,” al-Binali said. “There are, at the B, C [funding] rounds, we see opportunities.” 

His advice to Israelis looking to forge ties in the Gulf? Pace yourself.

“If you sit there sending emails every week, you’re gonna burn out,” he said, adding that slowing down and being deliberate can be worth it.

“The payoff in the end is big. Not just in terms of investment size but in terms of commitment. Because once an Emirati or Gulf investor comes in, they’re going to back you all the way. It’s not hot money. So you have to earn that trust.”

Plunge in venture capital funding threatens prospects for Gulf startups

ABU DHABI, United Arab Emirates – Philip Bahoshy has spent more time than usual in the last few weeks trying to calm Gulf investors, startup founders and government ministers who are alarmed by the slowdown in venture capital funding.

As investment plunged globally in the first half of 2023, the chief executive of Magnitt, a Dubai-based tracker of VC data, finds himself now in a classic example of “don’t shoot the messenger.”

Venture activity in the Middle East and North Africa faced a significant decline year-on-year, posting a total of $1.1 billion in funds raised across 193 deals: a 41% drop in funding and a 64% decline in the number of transactions.

“This is the first time I actually did a road show to meet ministers and our key clients because I wanted to make sure that people understood the data, which is not reflecting positively,” Bahoshy told The Circuit. 

While the drop mirrors global trends – higher interest rates and fluctuating capital markets are muting investor appetite worldwide – the calendar didn’t help.

The second quarter exhibited a more pronounced slowdown, exacerbated by the holy month of Ramadan and two Muslim Eid holidays that then transitioned to the dog days of summer, both typically less active times for the region, Bahoshy noted.

Three large deals have accounted for more than half of the funds raised so far this year. Saudi Arabia’s gifting company Floward and grocery delivery service Nana raised $156 million and $133 million, respectively, in Series C rounds. Egypt-based e-commerce platform Halan raised $260 million in equity financing.

Late-stage rounds, which were once dominated by international funds, are now being led by regional investors as outside players retrench. 

The number of investors participating in the MENA region’s VC ecosystem fell by 55% – from 353 investors in the first half of 2022 to 159 in the same period this year – according to Magnitt. Only a third came from outside the region.

In Israel, which has the world’s highest number of startups per capita, companies raised $3.7 billion in the first six months of 2023, a 68% drop from the same period last year and the lowest amount of technology investment at the midyear point since 2018.

Several years ago, big names like Sequoia Capital, SoftBank, Naspers and Tiger Global were making plays in the region. 

“We [now] see an alarming gap in capital,” Luca Barbi, chief operating officer of STV, an active growth stage VC fund with Saudi founders, told The Circuit. 

“Those [international] players are not active anymore in the Middle East because the context now is more challenging… and they’re now focusing more on their core markets,” he said, leaving a gap in growth-stage funding.

While there is a healthy pipeline of growth-stage companies, a number of which are reporting $100 million or more in revenues and some approaching break-even, Barbi said there is a shortage of “credible investors supporting them to go further.” 

For much of 2023, a prevailing narrative has been that the greatest fundraising opportunities are in the Gulf. 

Entrepreneurs and investors from the West, including Adam Neumann, Marc Andreessen and Nelson Peltz, have been vocal in their support for the economic transformations underway in Saudi Arabia and the UAE in particular, underpinned by the countries’ sovereign wealth funds. 

But to raise funds in the Gulf now means a certain percentage needs to be reinvested back into those local markets, Bahoshy said, a reality that may be slowing activity. 

“I think that the sovereigns are right at the beginning to say, if you want to come and take our dry powder, the requirements will be that a certain percentage of that needs to be deployed back into our local markets,” Bahoshy said. 

“That is a mandate that many of these people that are coming here aren’t necessarily comfortable with doing yet.”

As the summer wanes, attention will eventually turn to the high-wattage international events being hosted in the region.

Gitex, Dubai’s major technology conference, Riyadh’s Future Investment Initiative and the United Nations COP28 climate conference, hosted by the UAE, are all coming up in the fourth quarter. 

Each offers a chance to revive the narrative that the region is on the move, and stimulate investor appetites. 

“[If] people start deploying later in the year, the picture might change quite rapidly,” Bahoshy said. For now, that appears unlikely. 

Arjun Vir Singh, a financial services consultant who specializes in fintechs with a focus on the Gulf, expected the drop-off in investment to be much worse, with farther reaching impacts. 

“I was expecting greater blood in the street,” he told The Circuit. “At the same time, I don’t know how businesses are staying afloat.”

He predicted an influx in mergers and acquisitions in the months ahead. 

Barbi, of STV, expects more MENA startups to sell shares on the Saudi Exchange. Those that survive this downturn, “will be strong enough to stand alone,” he said.

Recovery in tech investment leaves Israeli startups behind

TEL AVIV, Israel – Israel’s tech industry is lagging behind the U.S. and Europe in attracting venture capital amid breakthroughs in artificial intelligence that are generating renewed investment in startups, according to three new reports.

Companies in Israel raised $3.7 billion in the first six months of 2023 – the lowest amount of technology investment at the midyear point since 2018, according to a survey by the Start-Up Nation Policy Institute. That represents a 68% drop in financing from the same period last year.

Drilling down further, a report by the IVC research center, an industry group, and Bank Leumi’s LeumiTech unit indicated that the 100 fundraising deals recorded in the second quarter of 2023 represented a 48% decline from the corresponding period last year. Second-quarter funding was down 65% from the same quarter in 2022.

The SNPI report suggested that perceptions of instability in Israel stemming from government efforts to overhaul the judicial system and widespread protests against the proposals continue to chill investment.

“We are concerned that local unrest could cut off Israel’s high-tech industry from the global technology sector’s recovery, making it less competitive during this crucial time,“  the policy institute said.

The government’s Israel Innovation Authority added its own note of caution in a midyear report, citing a recovery by technology stocks in the U.S. that has not included Israeli companies. The Nasdaq 100 technology sector index rose 23.7% in the first quarter, compared to Israeli companies on the Nasdaq that increased only 10.8%.

“In light of the increase in the NASDAQ since the beginning of the year, the normal expectation would have been for an increase in fundraising and employee recruitment in Israel already during the summer months of 2023,” the government report said. “However, according to indicators presented so far, and which are reinforced by data for April and May, there is a genuine concern that Israeli high-tech will become detached from global trends.”

Israel’s success in spawning technology companies was enshrined in a 2009 book by Saul Singer and Dan Senor called Start-Up Nation. Technology has anchored Israel’s economy for the past three decades, now accounting for 15% of GDP, 50% of exports and 25% of tax income.

Tech company founders have been among the leaders of the protest movement against the proposed judicial measures, arguing that foreign funds are afraid their investments won’t be safe in Israel if the court system is the government controls the courts.

Moody’s Investors Service downgraded the country’s credit outlook in May from positive to stable, citing a “deterioration of Israel’s governance.” A month later Standard & Poor’s maintained its ratings for Israel after Netanyahu slowed down the judicial overhaul and said it would be moderated to reflect public concerns with the legislation.

Koch’s Israeli investment chief aims to disrupt venture capital funding

Eli Groner meets with hundreds of startups each year as the managing director in Israel for Koch Disruptive Technologies, which since 2018 has doled out almost $1 billion to emerging Israeli companies. For the fraction of those deemed disruptive enough to get funding, KDT, the venture arm of gigantic U.S. conglomerate Koch Industries, sees itself as a devoted ally that doesn’t expect quick returns.

“We are patient capital,” Groner told The Circuit during an interview at the firm’s 35th -floor Tel Aviv office overlooking the Mediterranean. “We invest with the expectation that we are going to partner with them forever or for at least for 10 years. Now, that is not always the case, but that is certainly the way we look at it when we make an investment. So, we want to work with people that are high integrity, resilient, committed and playing the long game.”

Dressed in a light-blue button-down shirt and tailored tan trousers, the American-born Groner has business experience and an insider government background that impressed KDT when the firm opened its Israel office three years ago, the only one outside the United States. Now 52, he spent three years as a top aide to then-Prime Minister Benjamin Netanyahu, serving as director-general of the Prime Minister’s Office. Any political savvy he gained in government has been useful in representing Koch Industries, whose owners are among the biggest contributors to right-wing causes in the U.S.

KDT, founded in 2017, focuses on “early and growth stage” technology companies around the world, with an aim also at finding synergies to boost parent company Koch Industries. The Wichita, Kan.-based conglomerate had revenue last year of more than $125 billion and 120,000 workers worldwide. It owns a diverse group of companies involved in activities that include manufacturing, agriculture, paper, building materials, oil refining, renewable energy and medical products. 

KDT’s first foray in Israeli startups, and first investment ever, preceded Groner’s joining the firm –  $100 million in backing for Insightec, a maker of magnetic resonance-guided ultrasound technology. The company’s products help alleviate ailments like Essential Tremor, which causes involuntary trembling of the head, hand and voice, and Parkinson’s disease, which causes uncontrolled movements throughout the body. KDT followed up with an additional $100 million to the company in March 2020.

When it first funded Insightec, KDT didn’t have an office in Israel. On a visit to meet industry players, company executives had an encounter with Groner, fresh out of the Prime Minister’s Office, who offered a geopolitical overview of Israel and the region. “We really connected on vision and values,” Groner said. “Six months later I got a formal offer to join KDT and open up the Israel office.”

Groner has since led KDT’s investments in 13 Israeli startups that operate in fields ranging from health care, semiconductors and cybersecurity to manufacturing and agriculture. 

As a rule, Koch-funded companies must be “disruptive” — having the potential to promote “creative destruction — the continuous process of iterating, improving and destroying current business models and platforms, even our own,” the firm says on its website. Ideally, they can also transform Koch Industries, to help the mother ship keep up with industry developments and best prepare itself for the future. As far as the chosen entrepreneurs, they must be dedicated and flexible, Groner said.

“You can have the best vision, the best strategy, the best technology, [and] you’re going to be beaten down time and again, because things aren’t always going to go your way,” he said. “A founder who is resilient, who can roll with the figurative punches, and figure out how to execute, no matter which curveballs are thrown his or her way, those folks are gold.”

Groner’s efforts come during a period when Israel is forging new partnerships with the United Arab Emirates, Bahrain, Morocco and other Arab countries, under the banner of the Abraham Accords signed two years ago. 

It is a “very exciting time for the region,” he said. “It is an opportunity for everyone, whether you are an entrepreneur, whether you are an investor. But at the end of the day, it is going to be the same values and principles that apply. Are you aligned in values? Are you aligned on vision?”

Because of Koch’s wide variety of enterprises, the conglomerate can help startups test and sell their technologies within its holding companies and its network of partners, thus getting their product to market faster and providing “meaningful support for entrepreneurs,” Groner said. 

In the health care sector, besides Insightec, KDT has invested in Immunai, which seeks to map the immune system to create new therapies and drugs, and NeuraLight, which is building a platform driven by artificial intelligence to improve drug development for patients with neurological disorders.

In the semiconductor field, KDT led two investment rounds for a total of $217 million in Vayyar, a developer of radar imaging technology for sensors used in a variety of industries. KDT has also invested in cybersecurity startups Cyrebro, where it led a $40 million funding round, and OneLayer, in which it made an equity investment of $6.5 million; KDT led a $45 million investment round in the drone startup Percepto, and invested in the agtech firm Greeneye Technology, which uses AI and deep learning technologies for the selective spraying of pesticides. KDT’s first exit was the sale of Israeli software firm DeepCube to Nasdaq-traded Nano Dimension Ltd for $70 million, according to Crunchbase data.

According to data compiled by the IVC Research Center, which tracks the Israeli tech industry, capital raised in Israel with Koch participation totaled $1.33 billion in 2021 as opposed to $150 million in 2017. In the first nine months of 2022, capital raised by Israeli startups with Koch participation totaled $304 million.

Corporate venture capital involvement, such as Koch’s, in Israeli tech companies has surged over the past few years, with such deals accounting for almost 50% of the total in 2021, a bonanza year for fundraising by startups. Investment has slowed in 2022,

“The rise in activity by Koch reflects a rise in the involvement of corporate venture capital funds in the Israeli tech ecosystem, and the need of local tech firms for the significant amounts of money they can provide,” said Marianna Shapira, a senior analyst at IVC.

Koch Industries has been the subject of controversy for years – with critics pointing to the extraordinary wealth of members of the Koch family, their large contributions to conservative political causes, and their vast political influence on a variety of issues in the U.S., including skepticism about climate change. OpenSecrets, an organization that tracks campaign spending, reported that Koch Industries has injected over $1 million in backing, directly and indirectly, dozens of House and Senate candidates who voted against certifying Joe Biden’s presidential victory after protesters rioted in the U.S. Capitol.

Asked whether controversy surrounding the Koch family affects his work, Groner said he is sure there are many company founders that his office funds who do not agree with him or with Koch politically. “The best way to change people’s perceptions is to work closely with them and partner with them and focus on areas where we are aligned.”

Declining to address the issue directly, a company spokesperson pointed to an article written two years ago by Charles Koch. In it, the billionaire co-owner, chairman and CEO of Koch Industries congratulated President Joe Biden and Vice President Kamala Harris on their victory and called for all parties to work together to solve the crises that are holding back the nation.

On the issue of climate change, the Koch website says “manufacturing and a healthy environment aren’t mutually exclusive” and shows data about how the firm is cutting emissions, producing less waste and investing in energy efficiency projects.  

As chief of Netanyahu’s office from June 2015 to May 2018, Groner was responsible for domestic and international policy decisions, from developing Israel’s offshore natural gas fields and deregulating the economy to setting up the nation’s cyber bureau and its digital health policy. At the same time, he juggled foreign policy issues and was tasked to deal with Israeli political parties. 

Before joining Netanyahu, Groner was Israel’s economic attaché to Washington. Previously he was a senior advisor to the chairman of Tnuva, one of Israel’s largest food makers. He also worked for six years as a consultant at McKinsey & Company and five years at The Jerusalem Post as a sports and economic reporter.

As a child he lived in the central New York city of Binghamton, where his father was the rabbi of an Orthodox Jewish congregation. After moving to Israel, Groner performed his military service as a paratrooper. He went to college at Israel’s Bar-Ilan University and earned an MBA at New York University.

The business world is different from politics and government, Groner said, but he feels very much at home in both worlds. “It is two different muscles, two different skill sets. And it is very, very hard to succeed in both because it requires different skills. I personally, am very intrigued by both worlds. I enjoy both worlds and recognize that each one has different benefits and drawbacks.”

He must also now operate in an environment that has turned sour for tech, with shares and valuations plunging globally in the wake of Russia’s invasion of Ukraine, rising inflation and lingering effects of the COVID-19 pandemic. 

The lower valuations, Groner said, are healthy for the economy, as they can create  investment opportunities while clearing the field of poorly performing companies.

“You are going to see valuations go back to normal, sanity returning to the markets,” he said. “Any great crisis is a horrible thing to waste. This is going to create incredible opportunities for people that are patient and take a long-term view. ”Koch is committed to Israel, he said, because the company has identified that there is within the tiny nation a “very distinctive concentration of disruptive technology.”

Groner said Israel’s value comes from a unique concentration of entrepreneurs, academic institutions, the military, venture capitalists and growth equity investors spread over a small geographical area.

“There’s no place else like it in the world, really,” he said. “That is my focus here.” 

An electric vehicle pioneer drives growth of Mideast transportation startups

TEL AVIV — Michael Granoff, whose $160 million venture capital firm invests in companies that expand the way people get from one place to another, hates driving the family car to work.

Granoff, founder and managing partner of Maniv Mobility, generally commutes to his Tel Aviv office from a northern suburb by train, bus, taxi or riding with a neighbor. For a meeting across town, he’ll hop on one of the motorized rental scooters clustered on city sidewalks.

“I prefer anything than having to sit in traffic and not be productive and be frustrated and then having to park,” Granoff, 53, told The Circuit in a recent interview. “It actually doesn’t cost me more.”

Granoff is not just trying to save money. He’s an evangelist and battle-scarred veteran in the global revolution to widen vehicular choices. To date, Maniv has made investments in 37 companies spread across eight countries. The businesses range from designing sensors in Israel for self-driving cars and running a Tesla ride-sharing service in Manhattan to unleashing electric scooters on the United Arab Emirates.

It’s the Gulf that gets him jazzed these days. Just a week after the UAE and Bahrain signed the Abraham Accords with Israel at the White House on Sept. 15, 2020, Granoff jumped on a plane. He was soon introduced to the founders of Fenix, which runs the Emirati scooter fleet, and made his first investment — $3.8 million — in the company.

“Dubai is becoming a bit of a technology magnet for the Arab world in a similar way that the [San Francisco] Bay Area is, and the government there is committed to nurturing the tech sector and entrepreneurship. I think there will be lots more opportunity over time,” Granoff said.

Granoff grew up in New York City, the son of clothing maker and philanthropist Martin Granoff, who is also a champion horse breeder. Besides inheriting a love for harness racing and Broadway composer Stephen Sondheim, a family friend, young Granoff was fascinated by all kinds of vehicles, particularly the Zamboni truck driven in circles to smooth the ice at skating rinks, according to family lore.

After undergraduate studies at Tufts University, Granoff earned a law degree and an MBA at Northwestern University before returning to New York and opening Maniv Investments LLC, named after the Hebrew word for yield. Among his biggest ventures was Better Place, an ambitious effort in Israel at building a charging network for electric vehicles, or EVs. Founded by charismatic entrepreneur Shai Agassi, the company enchanted investors including Israel’s Idan Ofer, France’s Groupe Renault, HSBC and Morgan Stanley. It burned through $1 billion in capital before going bankrupt in 2013.

Around that time, Granoff moved to Israel with his wife and four children, where he established Maniv Mobility in an effort to find alternatives to gasoline-fueled engines. EV purchases have soared by 70% in Israel over the past year with more than 10,000 new vehicles on the road, Globes reported in June.

Granoff rates the introduction of smartphone apps in 2008 as a historic event for the auto industry — comparable to the Ford Model T a century earlier. Apple’s iPhone “was sort of the beginning of the age of digitizing transportation, which has the effect of making it much more versatile, flexible, cleaner and accessible,” Granoff said.

As President Joe Biden tries to spark the U.S. electric vehicle industry with incentives for manufacturers and car buyers, Granoff broods for a few moments over Better Place’s plight.

“Look, I think the Obama administration missed a golden opportunity in 2009 to do really what Biden has now done, but it could have been done in even a much more dramatic and robust way,” Granoff said. “It was already clear to anybody who was paying attention that the world was moving to electrification,” he said. “We could have been in a position where carbon emissions and… the price of gasoline at the pump… could have been ameliorated with better policy a dozen years ago.”

Maniv has moved on, though, and is involved in all aspects of the EV market. Granoff’s not worried about the fact that electric cars still have trouble finding charging stations. “These are the growing pains of a fast-scaling industry and they’re going to get figured out,” he said.

Granoff’s resilience after Better Place has established him as an important investor today for early-stage mobility companies, said Brian Blum, author of Totaled: The Billion-Dollar Crash of the Startup that Took on Big Auto, Big Oil and The World.

“It was a real blow to have this thing that he believed in so much fall apart,” Blum told The Circuit. “The thing is it didn’t stop him from continuing on his mission of investing in the future of mobility and technology. You know, he just jumped right back into it.”

Among Granoff’s most prominent investments in recent years is Israel’s Otonomo Technologies, which collects data from network-connected vehicles. After going public on the Nasdaq last year through a SPAC (special-purpose acquisition company), Otonomo lost some 80 percent of its value. Saudi Arabia’s Mithaq Capital reported last month that it has amassed a stake of more than 20 percent, making it Otonomo’s biggest shareholder.

In his hometown, Granoff invested in Revel Transit, which is tackling many of the problems that stymied Better Place. The company started by renting mopeds and e-bikes to navigate the traffic-clogged streets of Manhattan. Last year it introduced a ridesharing service that uses a fleet of bright blue-colored Tesla Model Ys to compete with Uber, powered by its own proprietary fast-charging stations.

Phantom Auto, which enables companies to operate driverless forklifts that are steered from remote screens, is another promising startup in Maniv’s stable.

As much as Granoff is determined to develop alternatives to conventional vehicles, he has no illusions about Americans giving up their family cars, especially with 90-minute commutes and the routine need to drive enormous distances.

“Anyone who thinks that car ownership is dead,” he said, “has never had kids or never been to Texas.”