For a while now, we felt it’s about time someone mapped out the funding landscape in Israel. At iAngels, we took it upon ourselves to categorize the key investors so that each aspiring entrepreneur and investor can easily find their way in the Israeli high-tech ecosystem
The entrepreneur’s funding compass:
- I have an idea – You are still at your old job and have thought of a great idea for a company you feel passionate about and would like to pursue. At this stage, the best path for funding is friends and family or people that know you professionally and believe in your capabilities.
- I have an idea and a plan – You might still be at your old job but you have already devoted some time to your idea. This stage typically includes finding another co-founder who shares your passion, developing initial market research and forming a business plan and PowerPoint presentation. At this stage it makes sense to reach out to accelerators and incubators for funding, unless you can afford bootstrapping. Accelerators usually invest $25-50k for 5-15% of the company. Some of the best ones provide great mentorship programs that help you sharpen your value proposition, validate your concept, open doors within the business community and prepare you for seed funding.
- I have a team and a proof of concept – You have formed a team and are working full time or pretty close to it on your startup. You’ve done extensive research and have received indications that your startup could succeed. At this stage it is best to reach out to Angel Investors. Angels can act as your mentors and supporters early on, when you are working on validating your product and connecting with relevant players. Angels typically invest $50-100k for 5-10% of the company.
- I have a company and initial traction – Your company is up and running, you already have some customers, pilots and maybe even initial revenues. At this stage it makes sense for you to reach out to early stage VCs, equity crowdfunding platforms and angel clubs. These players like to invest when there are some early winds at your back and will typically put in $500-1,000k for 10-20% of the company.
- My company has significant traction and revenues – Contrary to what many people think, VCs typically invest only after a company has established itself and started generating revenues. If you have proved your business and need a significant amount of capital to scale, it makes sense to approach VCs. VCs invest between $2-30m over the lifetime of the investment (rounds A-D) with the goal of maintaining a 15-30% position in the company. The best VCs provide ongoing support, added value and follow-on funding.
- My company is approaching an exit event (M&A or IPO) in the near future – As your company is progressing nicely, it may require a significant amount of capital to support the growth required to bring it to the critical mass it needs to reach an exit event. In this case, it makes sense to approach a growth crossover fund. These funds typically invest $10-100m for 10-30% of the company.
- My company is ready for an exit – The moment your investors have been waiting for: your company is ready for a liquidation event, as you have caught the interest of a strategic player or the public markets. An acquisition is typically a transaction for the entire share capital of the company. An IPO is the floating of your company shares on a public exchange like the NASDAQ or NYSE. An IPO typically entails the offering of 20-25% of the company for at least $100m and usually more.
Each fundraising round will typically entail 10-25% dilution from investors and another 5-15% set aside for the option pool so you should expect a 15-40% total dilution each time you raise capital.
At any point in time, engaging foreign investors is a great idea as these typically have strong networks you can tap in key geographies like the US, China and Europe. Often though, you will discover that these investors (especially those based in Silicon Valley) prefer to invest in their backyard and might ultimately require that you establish a presence abroad.
Happy fundraising to us all!
Shelly Hod Moyal
Founding Partner, iAngels