US-Israeli investor sounds alarm over lack of foreign capital for local startups
Denver-based VC raises $50m for emergency fund to invest in cash-strapped Israeli businesses as foreign investments stall amid uncertainty during war and shortage of US flights
Sharon Wrobel is a tech reporter for The Times of Israel
Israeli-American venture capitalist Ezra Gardner has continued to travel to Israel from the US once a month since war with the Hamas terror group broke out in October last year, despite the suspension of direct flight routes to and from the country by most foreign airlines.
The co-founder of Israeli-focused venture capital firm Varana Capital flew in from Denver, Colorado, this week with a lengthy stopover in Frankfurt; on his way home he’ll have to spend a night in London.
“It is a unique challenge every time to get here and back home,” Gardner told The Times of Israel. “I allocate one week a month to Israel — of which four days are spent on traveling and three days in Israel — to support local startups as they run out of capital.”
“We have invested in Israeli startups for many years, but the outbreak of war has created a severe problem for the influx of foreign capital on which the ecosystem depends, so we come to Israel to meet with potential new portfolio companies as we believe that investing in Israel right now is an opportunity,” he said.
Israel’s tech sector has remained fairly resilient during the 14 months of still-ongoing war with Hamas, continuing most of its operations despite many employees and key personnel being called up for reserve duty.
However, the heightened geopolitical uncertainty and the suspension of Israel service by many foreign airlines over the past year have made it increasingly challenging for many firms to meet with foreign investors as they are pressed to raise much-needed capital.
“If you want to know a proxy for what’s going on in Israel from an economic perspective, just look at the passenger traffic at Ben Gurion Airport,” said Gardner. “I’m coming every month to Israel through the airport and there is not one person walking through the foreign passport line.”
“If you don’t have foreign passenger traffic at Ben Gurion, then people aren’t bringing money here,” he said.
With this in mind, Varana Capital led by Gardner launched the Chai 10x emergency fund and raised $50 million to help provide Israeli startups with a lifeline during the ongoing war.
“Many emergency funds were launched during the war, but we raised the largest emergency fund in terms of the size at the close,” said Gardner. “We went everywhere, every living room that would have us, every synagogue, every JNF conference, and every wealth management conference that would have us.”
Gardner said his team experienced “firsthand how difficult it was to raise money, even though we were speaking to the wealthiest, most Zionist Americans that there are.”
“A lot of wealthy American Zionists conflate charity with investment in Israel,” said Gardner. “It was easier for a lot of wealthy Americans to bury their heads in the sand and say, you know what? If I write a check to a charity, then I did my part.”
“I think that there is also a real fear of investing in what people perceive as a war zone,” he added.
For now the Chai fund has made 11 investments into Israeli startups with a focus on Israeli hardware and deep tech companies — including agritech, medtech, robotics, and mobility — that are at the point of commercialization and are in need of first-time access to foreign capital.
Among the startups backed by Varana’s emergency fund are Nakai Robotics, which developed an autonomous robotic system to clean merchant ships’ hulls, and Israeli battery tech startup Addionics.
Although local and international VC funds have remained somewhat bullish on Israeli technology, Gardner cautioned that US funds were not joining many financing rounds, especially for new investments into local startups.
“Over the past 12 months, there has been no recovery in Israel, while the rest of the world has recovered, and there is about $6 billion in foreign investment that is missing from the Israeli market,” Gardner estimated.
Over the past year, the lion’s share of investments in the Israeli tech ecosystem has gone to fewer companies and has been concentrated in cybersecurity, with few resources directed toward other sectors. While between 2014 to 2022 the 10 largest investments made up less than 20% of all investment, in 2023 they accounted for a quarter of total investment, and in 2024, nearly 50%, according to a research report by the Israel Advanced Technology Industries and RISE Israel Research and Policy Institute.
“When we you look at US funds and the percentage of their capital that they are deploying into Israel, 2021 was an unbelievable year, then it went down in 2023, and 2024 is an all-time low of deployment of US funds,” Gardner said.
Israel’s tech sector, the growth engine of the economy, is reliant on foreign capital with about 80% of venture capital investments in local tech startups generated from foreign funds.
Over the past decade, the economy’s dependence on the tech sector has significantly grown, driven by rapid growth in tax revenues from the sector, led by an increase in the number of employees and rising salaries. Tech employees pay more than a third of all tax income collected, which underpins the vital importance of the sector as a key driver for the recovery of the war-battered economy.
Asked about why foreign investors are not answering calls to join financing rounds over the past year, Gardner said that it is not because they are afraid of equity risk, as the main US stock indexes have been growing to all-time highs.
“Some say they love the innovation of companies and that don’t have any problem with Israel, but that it’s not politically correct for them to wire money to Israel now,” said Gardner. “If you are a VC based in the UK or Silicon Valley, or based in Tokyo, or in Seoul, you have plenty of places to put money other than Israel.”
Gardner said that the raised funds raised are almost “nothing compared to what the ecosystem needs as companies start to run out of money, which led to downsizing and many companies having to do layoffs.”
“Israeli banks need to open up their pocketbooks and make loans to Israeli companies to help finance the manufacturing of their products so that we can sell them abroad and bring income and jobs to Israel,” he said. “If it’s not done, unfortunately a lot of great companies with great prospects will have to shut their doors and we are already seeing some of that.”
Gardner is optimistic that it will be easier to raise funds in 2025 as Varana managed to deploy capital into promising companies in Israel at good valuations over the past war year. Still, he said he doesn’t see “Silicon Valley folks jumping on the flight that doesn’t exist on United from San Francisco Airport to Tel Aviv next year.”
“Risk and resilience will be defined by whether or not there is further public — meaning the Israeli government — and foreign private market support for Israel’s growth engine,” he said.
The Times of Israel Community.