Over the past few months, we’ve seen something that hasn’t been common since 2021: young Israeli startups raising unusually large amounts of capital – either through a single oversized seed round or two rapid-fire rounds – often exceeding $20M and sometimes far more, before they have a complete product or meaningful customer traction (and in some cases, even before the idea is fully formed!). Yes, the environment carries early signs of another bubble, but more importantly, there is a structural shift happening underneath the surface that explains why these rounds are returning.
Why big funds are driving this trend
Major global funds have grown dramatically. Their rationale is straightforward: keep raising bigger funds and capturing a larger share of the overall capital pool. While they won’t admit this publicly, their business model is very different from the official VC tagline of capping the fund size and generating remarkable returns. It is rather the opposite: raising remarkable sized funds which will likely cap returns. One can debate the merits of this, but the stats speak for themselves, with over 70% of the global VC capital flowing into a smaller number of these enormous funds (or shall we call them asset managers?), they are dictating much of the market dynamics.
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Judah Taub, founder and managing partner of Hetz Ventures
(Photo: David Garb)
For them, it makes little sense to lead a $5–8M round (which once counted as a very generous seed) when the fund itself is $4B. The partner’s time, the conflicts that prevent participation in other deals, and the opportunity cost involved all push them toward one conclusion: deploy more capital. That is, after all, their business.
There are now a dozen multibillion-dollar funds thinking this way. And where do they deploy that capital? Into companies they believe will likely reach a Series A standard quickly, even before significant data is available; the kinds of companies with repeat entrepreneurs, exceptional teams, or/and founders operating in categories where Israel has historically excelled. So when a three-time cyber founder or an all-star cloud team shows up to build again, these funds say: Why spend all my time on such a small check? If I’m doing this, I’ll do it properly.
This is not always a financially rational decision on its own to place huge sums of money before the entrepreneur even has a fully formed idea. But in the broader context of how the competitive market is structured today, the behavior has become increasingly common.
Whether this is ultimately good investing or not, and acknowledging that it cannot continue indefinitely (cycles correct), we are nonetheless in a very particular moment. It may create a unique opportunity for the Israeli ecosystem. An ecosystem that has historically proven to create a huge number of successful start-ups but was also often questioned as whether these companies ‘sell too early’.
We are now witnessing not one but a batch of start-ups that, given the tremendous sums, have a number of structural advantages that could create long lasting Israeli successes.
Heavily capitalising a company allows it to:
1. Build full platforms, not tiny wedges: You can build something substantial from day one, like a platform or end-to-end solution rather than a narrow application or wedge. You don’t need to prove yourself in $5M increments. And when you talk to large enterprises (whether operating in cyber, cloud, data, or infrastructure) they increasingly want fewer vendors which can each offer more comprehensive solutions.
2. Make strategic moves, like hires, early: It also enables certain strategic decisions from day one: Should you hire a GTM leader in the US early? Should you run a bottom-up motion alongside a top-down motion? With only $1–2M in runway, these choices are difficult. There is always a risk of spending too quickly, but at least hypothetically, more capital gives you the ability to do more, faster.
3. Compete with giants by moving faster: There’s also the inherent risk that big companies, like the major cloud or cyber players, will replicate your product or beat you to the market. One of your biggest advantages is speed. They move slowly; you can move aggressively. Having more funding allows you to lean into that advantage.
4. Weather downturns and using cash as firepower: If the market enters a downturn, companies that have raised large rounds (even at higher valuations) will generally be in a better position. They’ll be sitting on cash that can be used for acquisitions or other strategic moves, while others are forced into survival mode. Some VCs argue that heavy early funding is itself a form of de-risking: run further, worry less about runway, and begin life with exceptionally strong financial backing.
5. Nudge founders out of the early exit habit: When founders raise at valuations above $300–400M, they know they’re moving outside the typical range for a standard Israeli acquisition. For some of these large VCs, whose model implicitly requires companies to go bigger, heavy early capitalization and higher early valuations intentionally remove the option, or the distraction, of an early exit.
So is all this good or bad? Neither. It’s a strategy.
Starting off with tens of millions of dollars and a high valuation you will need to grow into, isn’t a feature or a bug but rather a strategy. And, both founders and VCs should be fully aware of what it implies.
There is a scenario where this approach produces major Israeli successes: companies pushed from day one out of the traditional Israeli exit zone. In five to eight years, we may see a new cohort of larger Israeli corporations, either exiting at huge price points or maybe not exiting at all! But there is also a scenario where some of these companies end in spectacular failure – where the post-mortem reads like people spraying money with little financial discipline.
Which outcome we’ll get is still unknown. But as a market experiment, it’s worth paying close attention.
Judah Taub is a Managing Partner at Hetz Ventures.