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Israel’s first university venture capital fund proves the model works 

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

In 2018, Tel Aviv University established a venture capital fund – the first university in Israel to do so – with $20 million. Now with 18 startups in its portfolio, TAU Ventures just announced that it has raised a second fund of $50 million to invest in startups.

“TAU Ventures operates by the standard venture capital fund model, with a body that manages the fund (a subsidiary of the university that was founded for this purpose), and professional investors from the United States, Canada and Japan who have invested in order to make a good return,” says Nimrod Cohen, a managing partner in the fund.

TAU Ventures invests in startups in the early stages (pre-seed and seed) in a wide range of fields. In the fund’s first portfolio, invested up to $500,000 in each one; with the new fund, the maximal investment will increase to $1 million.

University-affiliated venture capital fund are common in the United States; MIT, Stanford and the University of California, Berkeley all boast them, Cohen says. TAU ventures is still the only fund in Israel to be affiliated with a university, but he says most of the other Israeli universities have expressed interest in the model, and have been in contact with him.

There are several challenges, Cohen says, to establishing funds like this in Israeli higher education institutions. “Universities are fairly bureaucratic organizations, and if you get caught in a university’s bureaucratic vise you won’t be able to form any kind of body that deals with startups, because that has to move fast. One of the challenges for us was to create an independent body.”

The fund also limited itself by stipulating that the startups in which it invests must include a TAU student or graduate on its team. But Cohen brushes this aside: “that covers most teams in Israel.”

But being affiliated with a university has its advantages as well, he explains. “One of the main things is the ability to use the fact that you are a part of the university and to offer entrepreneurs a lot more than money. We have all the resources surrounding the [TAU], from existing connections the university has to new connections that can be created thanks to the branding of the fund that’s connected to the institution, through a connecting to the university’s knowledge.”

He provides an example: “Let’s say a startup we’ve invested in is trying to solve some technological issue. It might be able to solve it on its own within a year, but maybe someone at the university could shorten the process significantly.”

Cohen also ties this in to an issue plaguing the industry – the worker shortage. “Students from the university do an internship in our startups as part of their degrees, and get credit for it. The students gain real-world experience and the startups get quality manpower for free.”

The fund is based in a 1,000-square-meter space in a Tel Aviv University building in “WeWork-style offices that don’t look like they’re part of a university,” Cohen says. “The startups get the option to sit here, which not only means that they save money on rent, but we create an ecosystem among the companies and between them and us. This leads to professional activities like a startup CEO forum – most of them are first-time CEOs – and social activities like yoga classes.”

Cohen says the fund has close ties with the industry, which are demonstrated in their collaborations. They also help the fund with the valuations of the startups they’re considering investing in: “As soon as we invest in a company, we connect the startup to companies in the industry that help them, and often become clients.” He says the model has proven itself. To date, TAU Ventures has invested in 18 very young companies (from a few months to three years old), and of these, 14 have substantial revenue – from a few million dollars up to $10 million a year.

Cohen says that while it feels like there is a lot of money in the market right now, that perception is deceptive. “There’s still a shortage of early-stage investors in Israel. Even growth funds that have started to get involved in early stages and the huge funds from the United States that have begun to get into early investment rounds are still mainly operating in the A-stages or post-seed. They’re not talking with entrepreneurs who are in the first stages. They want to see a product that has already come to market. We cover the critical stage that enables new companies to come into being.”

Source: Israel’s first university venture capital fund proves the model works – Tech News – Haaretz.com

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