Opinion
A tale of two cities: Foreign capital isn’t crowding out Israeli VCs - it’s just playing a different game
How Israel’s Seed market became a tale of two ecosystems operating side by side.
Over the past year, a familiar narrative has taken hold in Israel’s tech ecosystem: foreign venture capital funds have entered the market aggressively, scooping up the best early-stage deals and leaving little room for local Israeli funds. There is some truth to this claim - but like most good narratives, it only tells part of the story.
What we are actually seeing today is better described as a tale of two cities: two parallel early-stage markets operating side by side in Israel, each with very different dynamics, risk profiles, and sources of advantage.
Foreign mega funds such as Sequoia and a16z have indeed become far more active in Israel. Armed with deep pockets, strong global brands, and lower sensitivity to entry price, they are willing to lead very large seed rounds at high valuations - often before a company has meaningfully de-risked its product or market. This activity is real, visible, and easy to point to. It reflects a positive trend – global mega funds are doubling down on the Israeli tech ecosystem, signaling their conviction in it as a next frontier. But it represents only a small slice of what is actually happening on the ground.
According to data we shared at Viola’s most recent Annual LP Meeting, roughly 5% of seed transactions in Israel today are “mega-seed” rounds, typically in the $20–50 million range. These rounds are overwhelmingly associated with second-time founders, often in cybersecurity, who already have strong global networks and a track record that resonates immediately with US-based investors. Recent examples include Eon, led by repeat founder Ofir Ehrlich and already valued at $4 billion, as well as the newly announced cybersecurity company Tenzai, founded by veteran cyber entrepreneurs and backed by a recently disclosed $75 million seed round. In these cases, foreign mega funds are not just competitive – they are often the natural partners for these types of rounds.
In this segment of the market, the game is primarily about speed, brand, and the ability to commit early and decisively to a very large round. When you are managing a multi-billion-dollar fund, entry price matters less than access, ownership momentum, and the ability to secure exposure to a potential outlier. As a result, valuation sensitivity is lower, especially at the seed stage. For Israeli funds, competing in this environment only makes sense when there is a clear and differentiated edge.
But here’s the part that gets lost in the broader conversation: the remaining 95% of seed deals look nothing like this. Most seed rounds in Israel are still in the $3–10 million range. They are led by first-time founders, span a wide variety of technologies beyond cyber (>86% are non-cyber teams), and are often still in the process of shaping their product, market, and go-to-market strategy. More than half of these rounds are led by Israeli venture funds.
This part of the market is quieter. It generates fewer headlines. It doesn’t lend itself to viral tweets about valuation inflation or foreign capital “taking over.” But this is precisely where meaningful alpha is created.
A good example is PhaseV, a deep-tech company in the field of adaptive clinical trials. Viola led the company’s seed round at a stage when the risk was still very real and the story far from obvious. As the company matured and its potential became clearer, it went on to raise a $50 million Series A led by Accel and Insight Partners, less than two years after the seed round. Another great example is Faye, an insurance-tech company, where F2 and Viola led the seed round. Faye recently surpassed $100M in annual sales, merely three years after launching – an outlier, by any local or global standard.
Not every global fund would have led PhaseV or Faye seed rounds’, even if given the opportunity. But many were eager to step in once the upside was clearer and the risk profile more aligned with their mandate. That division of labor is something to understand and embrace. This is not a failure of the local ecosystem, but a feature of a healthy one.
Our approach reflects this reality. We choose to play across the entire field, not just one corner of it. We will absolutely participate in larger, more aggressive seed rounds – but only when we have a clear competitive advantage. That might happen in domains where we bring deep knowledge expertise, such as in fintech, or when backing second-time founders from our own portfolio. Both we did with the fintech company Sympera (where we invested in the serial entrepreneur Dudi Sosna), and with Zyg (whose founding team we supported for a second time, following our earlier partnership at IronSource). In these situations, we are comfortable writing very large checks and playing the global hype-game, because the strategic rationale is clear.
Which brings us back to Charles Dickens: “It was the best of times, it was the worst of times.” For Israel’s early-stage ecosystem, both statements can be true simultaneously. It is the “worst of times” only if you assume that value exists exclusively in the most hyped and most expensive deals. But if you recognize the unique position of local funds in our ecosystem – to identify outliers and generate alpha where it is less obvious at first glance – it is very much the best of times.
Tal Abuloff is a Principal at Viola Ventures, leading Seed and Series A rounds.
