Assessing Israeli VC Fund Performance: A Guide for Limited Partners

Introduction

Israel’s venture capital ecosystem has boomed in recent years, earning its reputation as the “Startup Nation.” VC investment hit record levels (peaking at ~2.3% of GDP in 2020, among the highest globally) before a slight pullbackoecd.org. As LPs consider Israeli funds, it’s crucial to evaluate performance with a data-driven lens. Over the past five years, Israeli VC funds have delivered strong returns, but outcomes vary widely across funds. This article discusses how LPs can assess Israeli VC fund performance using key metrics – IRR, TVPI, DPI – and contextual indicators like unicorn counts, exit multiples, time to liquidity, and follow-on funding success. We also compare Israeli VC performance to global benchmarks (U.S., Europe, Asia) and highlight unique strengths and weaknesses of Israel’s VC ecosystem. The goal is to help LPs interpret these metrics and make informed fund selection decisions in a structured, professional manner.

Key Performance Metrics in Venture Capital

Understanding VC fund metrics is the first step in performance evaluation. The core metrics include:

• Internal Rate of Return (IRR): The annualized rate of return of the fund’s cash flows (capital calls and distributions). IRR captures the rate at which the fund is growing value. A higher IRR means faster growth of invested capital. However, interim IRRs can be volatile and not fully “realized” until exits occur.

• Total Value to Paid-In (TVPI or Multiple): The ratio of the fund’s total value (distributions + remaining portfolio value) to capital paid in by LPs. TVPI (often expressed as a multiple, e.g. 1.5× or 2.0×) shows the fund’s overall value creation. A TVPI of 2.0× means the fund has doubled LP capital on paper (realized and unrealized).

• Distributions to Paid-In (DPI): The ratio of capital returned to LPs (cash or stock distributions) to capital paid in. DPI reflects realized performance – actual cash-on-cash returns. A DPI of 1.0× means the fund has returned all called capital; 0.5× means only half has been returned so far. In early years, DPI is usually low, rising as exits happen.

• Residual Value to Paid-In (RVPI): The remaining unrealized value in the portfolio to capital paid in. TVPI = DPI + RVPI. A high RVPI with low DPI means a fund’s returns are mostly unrealized (paper gains), whereas a high DPI shows the manager has delivered cash back to investors.

Beyond these financial metrics, LPs also examine qualitative indicators of a fund’s success: the number of unicorns backed (portfolio companies that reached $1B+ valuations), exit multiples on investments (e.g. how many times the invested capital was returned in each exit), time to liquidity (how quickly exits or returns occur), and follow-on funding success (what proportion of portfolio companies secure subsequent funding rounds). These help gauge a fund manager’s strategy and the portfolio’s trajectory, complementing IRR/TVPI/DPI figures.

Israeli VC Fund Performance (2018–2023)

Over the past five years, Israeli VC funds have generally performed well, though with significant dispersion between top and bottom performers. According to the Israel Innovation Authority, the net average IRR of Israeli VC funds over the last decade or so is around 13%oecd.org. This suggests that in aggregate Israeli funds have delivered low-teens annual returns to investors – a respectable outcome for venture capital. However, averages hide the spread between winners and laggards. In fact, an estimated 20% of Israeli VC funds generate 80% of the profits for the asset classoecd.org. Top-quartile Israeli VC funds have produced far higher returns, whereas bottom-quartile funds have barely broken even. One analysis found that between 2000 and 2015, the top quartile of Israeli VC funds achieved net IRRs above ~26% (and 3×+ multiples), while bottom quartile funds managed only ~5% IRR (nearly flat returns)medium.com. This ~20+ percentage-point performance gap highlights the importance of identifying the best managers.

In terms of investment multiples, Israeli VC funds target the same kind of 3×+ total return (TVPI) that top global funds do. A 3× TVPI (i.e. returning $3 for every $1 invested) over a 10-year fund life corresponds to roughly a 20–25% IRR – often considered a benchmark for strong VC performance. Indeed, industry veterans often cite a “3× net multiple or 25%+ IRR” as the level top-tier VC funds aim to delivermedium.commedium.com. Many Israeli funds have hit or exceeded these marks in recent boom years. Notably, several Israeli early-stage funds from the 2010s have reported exceptional outcomes thanks to big exits: for example, Magma Venture Partners’ early investment in Waze (acquired by Google) yielded on the order of a 100× return for that fundopenvc.app. Another Israeli fund, Vertex Ventures Israel, reportedly saw five unicorns emerge from a single $140 million fund – an unusually high hit-rate even by Silicon Valley standardsopenvc.app. These home-run successes drive up the averages for top performers.

It’s important to look not only at IRR but also at DPI (realized returns). Many Israeli funds have enjoyed liquidity events in recent years, which boosts DPI. Israel’s tech boom in 2020–2021 produced a wave of IPOs and acquisitions, allowing some funds to return capital relatively quickly. For instance, between 2019 and 2022 there were 595 tech M&A transactions and 117 IPOs of Israeli companiesblogs.timesofisrael.com, providing distribution events. By 2023–2024, several funds have DPI well above 1× (i.e. they’ve returned more than the invested capital) while still holding significant portfolio value in unicorns that could generate future distributions. A high DPI is comforting to LPs as it means actual cash returns have been realized, not just paper gains. On the other hand, some newer Israeli funds (vintage ~2018–2021) may show strong IRRs or TVPIs but low DPI, as their investments are still mid-journey (many companies remain private/unexited). In such cases, LPs must scrutinize the quality and maturity of the underlying portfolio to judge if the unrealized gains are likely to turn into DPI.

Another notable metric is exit multiple on invested capital. Israeli startups have often delivered attractive exit multiples for early investors. A recent analysis of Israeli cybersecurity exits found that acquisition prices averaged about 7× the total funding raised by the startupcalcalistech.com. This implies very healthy multiples for early-round investors (assuming those investors came in at much lower valuations than the exit). Moreover, the median Israeli tech exit size has grown – for cyber startups in 2024 it reached $150M (with an average of $212M)calcalistech.com. Such trends indicate that Israeli VC-backed companies are exiting at higher valuations than in the past, which can translate into better fund returns. Indeed, data suggests Israeli portfolio companies have been achieving exit valuations roughly 40% higher than global averages in recent yearsopenvc.appopenvc.app. This bodes well for VC funds’ multiples, provided the funds secured meaningful ownership stakes early.

Finally, time to liquidity in Israel has historically been relatively fast. Many Israeli startups are acquired at an earlier stage (and younger age) than their Silicon Valley counterparts. It’s often said that Israeli founders “sprint toward the exit” rather than scale for the long runblogs.timesofisrael.com. Venture investors in Israel also tend to seek exits within ~5 years, reflecting a fast-turnover mindsetblogs.timesofisrael.com. Recent data backs this: in the cybersecurity sector, the average Israeli startup acquired for $100M+ was only about 3–4 years old at exit, a full two years faster than in prior yearscalcalistech.com. Many $100M+ exits that used to occur after Series C or later are now happening after just a Series A roundcalcalistech.com. For LPs, quicker exits can be a double-edged sword – on one hand, faster liquidity (earlier DPI) is positive, but on the other, selling early can cap the ultimate upside (if companies exit for $200M instead of potentially growing into multi-billion-dollar giants). We will discuss this dynamic as a unique trait of the Israeli ecosystem below.

Comparing Israeli vs. Global VC Performance

How do Israeli VC funds stack up against global benchmarks? In broad strokes, Israeli VC performance has been strong, though the U.S. still leads on many metrics. According to recent data, North American VC funds have delivered around a 25% average IRR with roughly 2.8× TVPI (total value multiple) in recent yearsopenvc.app. European VC funds average closer to 20% IRR and 2.5× TVPIopenvc.app. Over the very long term, European VC has yielded ~11% annual returns since 2002openvc.app, a bit lower than U.S. rates. Asian VC performance is more heterogeneous – some markets have boomed while others lag. For example, venture returns in regions like Africa or certain Asian markets can spike higher (Africa has seen ~28% IRR, 3.1× TVPI, reflecting higher-risk, higher-reward profiles)openvc.app. Within Asia-Pacific, India has recently shown strong growth (funds riding a wave of ~40% value growth), whereas China’s VC sector experienced a slowdownopenvc.app.

Israel, as a smaller but mature VC market, lies somewhere in between these major regions. The average Israeli fund IRR (~13% netoecd.org) is in line with or slightly below the global VC median. This partly reflects that Israel’s figures include many legacy funds from early 2000s vintages that struggled – today’s environment is more favorable. Top Israeli funds, however, compete head-to-head with the best U.S. or European funds. In the mid-2010s, Israel produced some of the world’s top-performing VC funds. For instance, Glilot Capital Partners I (an Israeli fund vintage 2011) achieved a 3.7× net multiple and ~90% IRR in its early yearsdocs.preqin.comdocs.preqin.com, ranking among the top decile globally. Such outliers show that Israeli managers can deliver Silicon Valley-style outcomes when they back a big winner early.

Where Israeli VC truly stands out is in output relative to size. Israel consistently punches above its weight in venture outcomes per capita or per dollar invested. A striking example: Israel has the most unicorns per capita in the world, far exceeding other nations. From 2021–2023, Israel produced about 5.6 unicorns per million people, the highest density globallyportugalbusinessesnews.com. This dwarfs the U.S. on a per capita basis (the U.S. has ~1.8 unicorns per million)portugalbusinessesnews.com. In absolute terms, Israel is home to roughly 25–30 active unicorn startups as of 2024worldpopulationreview.com, putting it in the top five countries worldwide. For a country of ~9 million people, this is an extraordinary ratio – testament to the innovation ecosystem. By comparison, European countries like the UK, Germany, and France have dozens of unicorns but far lower per capita concentrations, and even the U.S. (with 600+ unicorns total) ranks behind Israel when adjusted for populationportugalbusinessesnews.com.

This unicorn-generating prowess translates into venture fund performance when those unicorns exit lucratively. Israeli funds have benefited from a robust global exit market in the last five years. Israeli startups saw a surge of high-value exits in 2020–2022, including IPOs on NASDAQ and big-ticket acquisitions (e.g. Mobileye’s multibillion-dollar sale to Intel, ironSource’s SPAC, the $11B sale of fintech startup Payoneer via SPAC, etc.). In 2021 alone, Israeli tech exit value reached over $15 billion across 99 dealsaccel.comcalcalistech.com. However, the 2022–2023 global tech downturn did temper things; Israeli exit values in 2023 fell roughly 50% from the prior year’s highstimesofisrael.com. Thus, an LP comparing regions should note that Israeli funds are not immune to global cycles – 2021 was a banner year everywhere, and 2022–2023 were more challenging. Even so, Israel’s ability to consistently produce acquisitions and some IPOs has kept many funds’ performance on par with U.S./European peers. Notably, Israel’s close ties to U.S. capital markets (both via listings and M&A) provide its VC funds an avenue to realize gains comparable to U.S.-based investments.

In summary, while U.S. venture funds on average have enjoyed slightly higher returns and larger absolute exits, Israeli funds are in the same ballpark, especially at the top end. The best Israeli funds can rival the best anywhere – and Israel offers some unique advantages (like more unicorns per capita and strong sectoral niches) that can complement a global VC portfolioopenvc.app. The key for LPs is to understand Israel’s unique ecosystem traits, which we turn to next.

Strengths of the Israeli VC Ecosystem

When evaluating Israeli VC performance, LPs should consider the ecosystem’s unique strengths that can be a tailwind for funds:

1. High Innovation Density and Unicorn Incidence: As noted, Israel produces an outsized number of successful startups relative to its size. It leads the world in unicorns per capitaportugalbusinessesnews.com, indicating a high density of high-potential companies. This means an Israeli fund’s portfolio has a fair chance of containing a breakout success if the manager has good access and selection. The ecosystem’s strong tech talent (often spun out of elite military units and universities) and entrepreneurial culture yield many “shots on goal” for VCs. For LPs, this vibrant startup pipeline increases the likelihood that a given fund could hit a home run investment – essential in an asset class where a few big winners drive most returns.

2. Sector Focus and Global Leadership: Israeli startups dominate certain sectors like cybersecurity, enterprise software, fintech, and deep tech. Data from 2023 shows cybersecurity and fintech alone accounted for ~69% of Israeli VC investmentoecd.org, reflecting areas where Israel is a global leader. An Israeli cyber-focused fund, for example, is tapping into one of the world’s top cybersecurity hubs. This specialization can produce high-multiple exits – e.g., Israel’s cyber startups have been acquired at premium valuations, with many deals over $100M and rising median exit sizescalcalistech.com. Israeli VCs leverage these strengths; funds often have deep expertise and networks in their focus domains (cyber, AI, semiconductors, etc.), allowing them to identify winners early. For LPs, investing in an Israeli fund can provide exposure to these cutting-edge sectors where Israel enjoys a competitive advantage (for instance, many global cyber innovation trends originate in Israel).

3. Strong Foreign Investor Participation (Capital Inflows): Israel’s ecosystem benefits from substantial foreign capital and partnerships. Over 70% of the funding in Israeli high-tech startups (2015–2023) came from foreign investors, primarily U.S. venture firms and corporatesoecd.org. This international interest is a positive sign: it validates the quality of Israeli startups and provides ample follow-on funding and exit opportunities. For an Israeli fund’s portfolio, having global investors co-invest can mean startups have the capital to scale and the connections for eventual exits abroad. It also often leads to acquisitions by those foreign corporates. For instance, U.S. tech giants like Google, Amazon, Intel, Microsoft, Cisco, and Meta have acquired numerous Israeli startups or set up R&D centers in Israel. In the cyber sector alone, firms like Palo Alto Networks, Cisco, CrowdStrike, and Akamai have been exceptionally active buyers of Israeli companiescalcalistech.com. This robust exit market driven by foreign acquirers increases the probability that an Israeli VC-backed startup finds a lucrative exit, thereby boosting fund DPI. In short, Israel’s integration into global tech networks is a boon for LPs – local funds can piggyback on international capital and exit pathways.

4. Quick Path to Liquidity: As mentioned earlier, Israeli startups tend to reach exit events relatively faster. This can be viewed as a strength in that LPs might see returns sooner than in other markets. Venture investors often joke that Israeli founders “don’t dream of building the next Google – they dream of getting bought by Google.” While this may limit the upside for any single company, it means a well-chosen portfolio can generate a string of moderate exits rather than waiting a decade for one IPO. Israeli VCs have honed the skill of positioning startups for acquisition by global companies. From an LP perspective, a fund that regularly achieves exits in 3–6 years can return capital (DPI) earlier in the fund’s life, reducing J-curve effects and allowing possible re-investment. Indeed, Israel’s VC industry is known for relatively high DPI at mid-term, as trade sales (M&A) return cash throughout the fund lifecycle. Rapid time to liquidity is especially attractive to LPs who prefer shorter duration investments or who value seeing tangible returns within a fund’s first 5 years. However, LPs should balance this against the possibility of greater value creation if companies were held longer – which leads to some of the ecosystem’s challenges.

5. Proven Track Records and Persistence: Many Israeli VC firms now have a 20+ year history, with multiple fund vintages to evaluate. There’s evidence of performance persistence among Israeli VCs: top quartile fund managers often repeat their success in subsequent fundsmedium.com. In fact, one study found an Israeli VC fund that achieved top-quartile status has roughly a 63% chance of its next fund also being top-quartile, whereas bottom-quartile managers had only ~11% chance to jump to the top in the next fundmedium.com. This persistence, similar to U.S. VC, means LPs can identify and stick with the consistently strong Israeli GPs. The presence of experienced managers with solid track records is a strength; for example, firms like Sequoia Israel, Pitango, Aleph, Viola, etc., have multiple fund cycles of performance data, giving LPs more confidence in their expected performance range. Additionally, the small, networked nature of Israeli tech can be an advantage – top funds often get first look at the best deals (due to reputation and founder networks), creating a virtuous cycle for performance.

In summary, Israel offers an innovation-rich environment, sectoral leadership, heavy global engagement, quicker liquidity, and established top-tier managers – all favorable factors for VC fund performance. These strengths help explain why many Israeli funds have matched or exceeded global returns in recent years, and why LPs worldwide are increasingly allocating capital to Israeli venture strategies.

Challenges and Weaknesses of the Israeli VC Ecosystem

No ecosystem is perfect. LPs should also be aware of inherent challenges or potential weaknesses in Israeli VC, which may impact how performance metrics should be interpreted:

1. Early Exits and “Exit Nation” Culture: The flip side of Israel’s quick M&A path is that startups often sell too soon, potentially limiting mega-scale outcomes. Critics have noted that Israel, for all its startups, has produced relatively few standalone global tech giants. Rather, many companies exit in the mid-hundreds of millions range or get acquired right after reaching unicorn status. As one commentator put it, “Israeli startups don’t scale; they sprint toward the exit… The dream isn’t to build the next Google – it’s to get acquired by Google.”blogs.timesofisrael.com This build-to-flip mentality, driven in part by the small domestic market and investors’ desire for quick returns, can cap the ultimate value creation. For LPs, this means an Israeli fund might realize a string of good exits (good DPI), but might rarely deliver the kind of 100× outcome that a U.S. fund might by riding a company to a massive IPO. In performance terms, IRRs can look great (because of fast turnarounds), but the TVPI might top out at, say, 3× instead of 10× because companies are sold earlier. Israel’s tendency toward M&A over IPO is evident in the stats: from 2019–2022 there were roughly 5 times as many M&A deals as IPOs in Israelblogs.timesofisrael.com, and even many IPO companies eventually got acquired (e.g. Mobileye, Playtika, CyberArk were acquired or taken private after IPO). This means DPI comes earlier but perhaps in smaller chunks. LPs should gauge whether a fund’s strategy prioritizes quick exits or attempts to build larger enterprises. Neither is inherently bad – they are different risk/return profiles – but it impacts how one views the fund’s metrics. A high DPI and moderate TVPI could reflect a “cash early” strategy, whereas a high TVPI with low DPI might reflect aiming for bigger outcomes later.

2. Limited Domestic Market & Scale Challenges: Israeli startups, by necessity, must target global markets from an early stage (Israel’s population is only ~9 million). While this pushes companies to be globally minded (a strength), it also means that scaling beyond a certain point typically requires relocating or heavily investing abroad (often in the U.S. market). Some Israeli companies struggle with this scale-up phase independently and opt to sell to a larger foreign player. For VC funds, this dynamic might mean fewer companies in the portfolio grow into late-stage behemoths. It can also elongate timelines for those that do try to scale (as they must open U.S. offices, etc., which could slow exits if not selling early). In recent years, there’s been improvement – Israel has seen more “scale-ups” and mega-rounds (15 rounds of $100M+ in 2024 totaling $4B, and a 49% jump in M&A value that year)medium.commedium.com. Even so, the average time from initial funding to major outcomes is growing as some companies choose to stay private longer to achieve larger scale. For instance, between 2019 and 2025 the average time from Seed to Series A in Israel nearly doubled (18 to 35 months) and Series A to B now ~30 monthsstartupnationcentral.org, reflecting more deliberate scaling. This trend could temper the historically rapid liquidity cycle; LPs might see slightly longer holds as companies aim to become bigger. The key takeaway is that Israel’s lack of a big home market introduces a strategic fork for startups: scale globally (which is hard and capital-intensive) or exit early. Many choose the latter. LPs should assess whether a fund manager has the conviction (and reserve capital) to support companies in going the distance, or whether they prefer earlier exits – and align this with the LP’s return expectations (big upside vs. quicker returns).

3. Reliance on Foreign Capital and Exits: While foreign investor involvement is a strength, it also means Israeli funds often face heavy competition in later-stage rounds and sometimes get diluted. A typical pattern: an Israeli fund leads a Seed or Series A, then as the startup gains traction, large U.S. VC firms come in at Series B or C with much bigger checkbooks. If the Israeli fund cannot follow on pro-rata (due to limited fund size), its ownership stake might shrink, potentially limiting its share of the eventual exit proceeds. In other words, foreign capital can reduce local funds’ participation in later-stage value creation. Additionally, foreign VCs often take board seats and may influence exit timing – sometimes pushing for sales that favor their return profile. LPs should look at how a fund manages follow-on investments: Do they reserve capital to maintain stakes in winners? Do they syndicate with global firms in a cooperative way? A fund’s follow-on funding success rate is informative here – i.e., what percentage of its portfolio companies go on to raise larger rounds from top-tier global investors. A high follow-on rate is positive (it means the fund picked companies that others want to invest in, and those companies likely have higher valuations), but LPs should also ensure the fund’s ownership isn’t overly diluted by the time of exit. On balance, being part of a deal that attracts big-name investors is good for the company’s chance of success, so it’s a net positive for performance – but it requires the Israeli VC to skillfully navigate co-investment dynamics.

4. Geopolitical and Macro Risks: The Israeli market carries some unique external risks. Geopolitical instability (e.g. regional conflicts or domestic political turbulence) can impact investor confidence and valuations in the short term. For instance, in late 2023 during a period of conflict, private funding in Israel briefly dipped more sharply than in the U.S. (down to ~66% of the prior level)pwc.com. While the tech sector has proven resilient, prolonged instability could affect exit markets or the willingness of foreign LPs to commit capital to Israeli funds. Moreover, currency fluctuations (though many funds operate in USD) and global macro conditions (interest rates, etc.) affect Israeli VC similarly to elsewhere. LPs should be aware that a great Israeli fund could still have a dry spell if macro conditions delay exits (e.g., a freeze in IPO markets). Diversification across geographies can mitigate this – many LPs balance U.S., European, Asian, and Israeli VC exposure to spread such risk.

5. Performance Dispersion – Need for Selectivity: As highlighted, the range of outcomes among Israeli funds is wide. The top quintile of funds produces most of the returns, while many lower-tier funds underperform or even lose money net of feesoecd.org. This means that an LP cannot assume every Israeli VC will match the “Israeli average.” In fact, median returns might be significantly lower than those of a handful of star funds. The implication is clear: fund selection is critical. One must conduct due diligence on the manager’s track record, team, strategy, and deal flow access in Israel. There are over 100 active VC firms in Israel, but arguably a core subset drive the best exits. Persistence of performance, as noted, is evident – so LPs should favor established managers with a history of top-quartile results (or promising emerging managers with unique edge) over blind diversification in Israel. The dispersion is actually an opportunity for savvy LPs to capture alpha by accessing the right funds. But it’s a challenge for those who cannot get into the top funds (many of which may be oversubscribed or have large re-ups from existing investors).

In summary, Israel’s weaknesses center on the propensity for earlier exits (limiting outlier outcomes), the constraints of a small local market, heavy reliance on foreign capital (which can dilute local fund stakes), and the high variance in fund performance requiring careful selection. None of these are deal-breakers – in fact Israeli VCs often manage these challenges well – but LPs should incorporate these factors when interpreting performance metrics. For example, a “good” Israeli fund might show a slightly lower TVPI than a U.S. counterpart not because the team is worse, but because its companies exited earlier by design. Context is key.

Interpreting Metrics for Fund Selection Decisions

Ultimately, LPs must use these metrics and insights to decide which Israeli VC funds (if any) merit investment. Here are some guidelines on interpreting the performance data in due diligence:

• IRR vs. TVPI vs. DPI: Pay attention to the balance of these metrics. An eye-popping IRR can be misleading if it’s driven by a quick markup on paper that hasn’t been realized. Always check TVPI (or multiple) alongside IRR – a fund might have a 30% IRR but only a 1.2× TVPI, indicating it sped up value early but hasn’t created much total value yet. Conversely, a high TVPI with modest IRR could mean the fund’s value grew steadily (perhaps taking longer, hence lower IRR) – which might be fine if DPI is also rising. DPI is king for assessing actual money-back performance. An Israeli fund boasting, say, 2× DPI has returned double the capital to LPs – a strong sign of success – whereas a fund with 0.2× DPI and a high TVPI means LPs are still waiting for most of the gains to materialize. For Israeli funds, given the culture of earlier exits, one might expect DPI to ramp up sooner than in some U.S. funds. LPs should still inquire about the nature of those exits: were they small acquisitions or meaningful wins? A healthy mix is ideal.

• Unicorn Count and Portfolio Composition: The number of unicorns or $100M+ exits a fund has is a useful indicator of whether it can pick future stars. Many top Israeli funds by 2025 can point to multiple unicorns in their portfolio. However, not all unicorns are equal – some may have sky-high valuations but unclear exit prospects. Dig into whether the fund’s unicorns have actually exited (and at what multiples). For example, if a fund lists five unicorns but none have exited or distributed value, its DPI may remain low – it’s essentially a bet on future outcomes. On the other hand, a fund with fewer unicorns but a couple of solid exits might already have realized returns. For fund selection, a proven exit track record often trumps paper unicorns. That said, Israel’s unicorn proliferation is a sign that a fund active in the last 5 years had rich opportunities – ensure the fund tapped into those (e.g., if none of the recent Israeli unicorns are in a fund’s portfolio, why not?). Additionally, consider sector exposure – if a fund is heavily tilted to one sector (say all cybersecurity), understand how that sector’s exit environment looks. Sector strength can drive performance (Israeli cyber funds have done very well recently, as noted, with many exits ≥$100Mcalcalistech.com).

• Exit Strategy and Timeline: When reviewing a fund’s track record or portfolio, ask the GP about their exit strategy philosophy. Do they aim to IPO companies or sell them by Series B/C? How long do they typically hold investments before exit? Given Israeli VCs often target 5-year liquidityblogs.timesofisrael.com, a fund’s IRR might benefit from quick flips. LPs should judge if that aligns with their goals. Quick exits can mitigate risk and return capital, but longer holds could 10× the money if a company truly breaks out. Some newer Israeli funds (especially growth-stage funds) are now trying to “break the cycle” and build independent big companies, as the local ecosystem maturesblogs.timesofisrael.comblogs.timesofisrael.com. This could mean slightly longer time to exit but potentially higher multiples. When comparing funds, consider these differences – one fund might pride itself on a high DPI from many trade sales, another might have lower DPI but be sitting on a few still-private unicorns that could yield huge DPI later. Depending on your risk tolerance and time horizon, you might prefer one model over the other or a mix in your portfolio.

• Follow-On Funding and Support: A key qualitative (and quasi-quantitative) metric is the follow-on rate – what percentage of the fund’s companies went on to raise significant follow-on rounds? High follow-on rates indicate strong company progress and validation by other investors. Israeli funds historically had good follow-on rates due to the influx of foreign capital for promising startups. For example, four top Israeli cyber-focused VC firms seeded 25% of all cyber exits in recent years, and 72% of the companies they seeded that exited were acquired for $100M+calcalistech.comcalcalistech.com, implying those firms successfully nurtured companies to substantial outcomes. Also, in Israel, many companies that get past Series A attract U.S. or global investors at Series B – a positive sign. However, as noted, the environment in 2023–2025 became more selective: the funnel from seed to Series A/B has tightened and lengthened (e.g., seed to A now ~35 months on average)startupnationcentral.org. This means funds need to work harder to ensure their seed investments mature to the next stage. LPs should ask GPs about their value-add: how do they help companies secure next rounds? Do they have network connections to bring in international co-investors? If a fund can demonstrate a high graduation rate of startups from seed to Series B (relative to industry averages), it’s a mark of strong portfolio management. It also de-risks the interim IRR – companies that continue raising are more likely to eventually exit rather than fail.

• Benchmark Against Global Funds: When considering an Israeli fund, LPs often compare it to top U.S. or European funds they could invest in instead. Use the global benchmarks as a yardstick: Is the Israeli fund promising something compelling? As discussed, top-tier VC performance in the U.S. might be ~2.5–3× TVPI and ~20–30% IRR over a decade. Many Israeli funds of recent vintage are indeed in that zone or better. For example, if an Israeli fund’s prior vintage delivered 2.8× TVPI, 25% IRR, 1.5× DPI by year 8, that’s globally competitive. If another fund delivered 1.5× TVPI, 10% IRR, 0.5× DPI in the same period, that lagged both Israeli and global medians – a red flag. Thus, don’t evaluate Israeli funds in isolation; incorporate global context. The one caution is to account for risk differences – Israeli funds often invest at earlier stages and in a smaller market, which can be seen as higher risk but also higher alpha potential. Some LPs may demand a slightly higher expected return for Israeli funds to compensate for perceived country risk or liquidity risk. Others feel Israeli funds provide uncorrelated alpha and are worth it even at similar returns to U.S. funds. In any case, benchmarking performance against global VC indices (Cambridge Associates, Preqin data, etc.) can inform whether a particular Israeli manager is outperforming or underperforming the wider venture asset class.

• Operational Due Diligence: Beyond the numbers, ensure the fund has robust operations and governance (especially if you are a foreign LP less familiar with Israel’s market norms). Check fees, transparency, team stability, and whether the GP has skin in the game. Many Israeli VCs have U.S.-style terms, but some smaller or newer ones might have nuances. A well-run fund will likely have better outcomes (for instance, the ability to raise Opportunity Funds or SPVs to follow on in winners, etc., which can improve overall fund DPI if managed well).

In practice, an LP selecting Israeli VC funds will often pursue a barbell strategy: commit to a couple of top-performing established funds (for more “certain” performance) and perhaps one emerging manager who has unique deal access (for potential outperformance). The metrics help identify the former – e.g. a firm with multiple funds above median and at least one top-quartile fund is a strong candidate. For the latter (newer fund managers), metrics like past deal successes (as angel or in prior firms), unicorns they were involved in, or their portfolio’s follow-on rates can serve as proxies in lieu of fund track record.

Conclusion

Israeli venture capital has evolved into a world-class ecosystem, and its funds have delivered competitive returns, especially in the last five years of tech expansion. By examining key metrics – IRR for growth rate, TVPI for total value creation, DPI for realized cash returns – LPs can quantitatively gauge a fund’s performance. Supplementing this with an understanding of how many unicorns or high-exit companies a fund has, how quickly it achieves liquidity, and how successfully its portfolio companies attract follow-on funding provides a 360° view of fund quality.

Comparisons with U.S., European, and Asian benchmarks show that Israeli funds are on par in many respects, even leading on certain indicators like unicorns per capita and quick exit multiples. The Israeli tech ecosystem’s strengths (innovation density, sector expertise, foreign capital infusion, quicker exits) have enabled its top funds to generate top-tier resultsopenvc.app. However, LPs should also account for the ecosystem’s idiosyncrasies: an emphasis on early exits and M&A, smaller home market constraints, and wide dispersion in manager performance means careful due diligence is vital.

Ultimately, informed fund selection comes down to understanding what the metrics truly indicate about a fund manager’s skill and strategy. For example, a high IRR with low DPI might be acceptable if you trust the unrealized investments will exit well – or it might be a warning sign of aggressive marking. A modest IRR but high DPI could be attractive if your priority is capital preservation and early payback. There is no one-size-fits-all answer, but armed with the right performance data and context, an LP can make nuanced decisions. Investing in Israeli VC funds can be highly rewarding, as many LPs have discovered, provided one aligns the fund’s profile with one’s own return objectives and risk appetite. With Israel’s tech ecosystem continuing to mature and produce global winners, the performance of its VC funds will remain an important area to watch – and now, LPs have a framework to evaluate that performance with clarity and confidence.

Sources: Recent OECD reports, venture industry analyses, and market data have informed this assessment of Israeli VC performance. For instance, OECD figures highlight Israel’s average VC IRRs and foreign capital shareoecd.orgoecd.org, while industry publications detail global vs. Israeli fund benchmarksopenvc.appopenvc.app and trends like time-to-exit and exit multiplescalcalistech.comcalcalistech.com. These and other cited sources provide the empirical backbone for the insights above, ensuring that LPs rely on up-to-date and factual information when assessing Israeli venture funds.