The Choice Facing Israeli Startups: Candle, Meteor or Star?

Things are complex in Israeli hi-tech right now. Many companies are trying to keep their heads down and conserve cash to keep the lights on as long as possible, while others are throwing all their energy into burning brightly, no matter how long that can last. 

In this article I’m going to look at both of those options, put them into perspective, and suggest that startups can approach this question thoughtfully to make these challenging times into an opportunity to evolve their mission, vision and strategic plan. 

An Unflinching Appraisal of Where Hi-Tech is At

Always distrust the simple narrative when it comes to Israel. If it sounds easy, someone is trying to sell you something, and it’s on you to beware. 

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It would be easy to tell an inspirational story about determination and resilience and grit about Israeli hi-tech this year. It would be easy to tell a gloomy story about layoffs, and difficulties raising funds, and the personal and professional stresses felt by almost everyone. Neither of those captures the truth of this time. 

Here are some facts about the current situation that sound good:

• Israeli tech companies raised $2.9 billion in Q2 2024, up 47% from the same period last year and up 60% compared to Q2 2020. 
• Taking the first half of the year into account, it’s a 36% increase compared to the first half of 2023. 
• M&A exits in H1 2024 surged to $4.1 billion, a 70% increase from H2 2023. Aside from H2 2021, this marks the highest value since 2018 and continues the upward trend from H1 2023.

Here are some more facts about the current situation that sound less good:

• 62% of the total amount raised in Q2 belongs to only six companies, and of those six, four were cybersecurity companies – Cyera, Island, Wiz and Semperis, which is part of our portfolio at Maverick. 
• 52% of private funding in H1 2024 was for cybersecurity companies, and cybersecurity M&A exits represent 35% of 2024 H1 exits ($1.5 billion across 9 deals). 
• In one recent survey, more than 60% of the respondents estimated that there was a low probability that they would be able to raise the capital they needed this year.

I could keep going, adding fact after fact to both lists. Both parts of this picture are true. The fundamentals of the Israeli hi-tech ecosystem are solid and robust. At the same time, most companies, especially outside cybersecurity and AI, are struggling in one way or another. 

No one knows what the future looks like, and startups have to make decisions about their current plans and their yearly goals and their future strategy anyway, in the midst of the uncertainty and the conflicting signals. Broadly speaking, they’re taking one of two paths. I’m going to call them the candle path, and the meteor/star path. Let me explain. 

Option 1: Reserve Fuel to Keep the Engines Running

The option chosen by most companies is the Candle option. In two words, capital preservation. 

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Keep the company going on low burn, spend as little as possible without losing customers, try to get new business with minimal possible spend, and extend the company’s runway as much as can be done. 

This is very much the prevailing mood of the industry right now, and it’s easy to see why. When things are tough in the market – and it’s not an easy time in tech generally speaking right now, while Israel’s domestic factors make it even more difficult here – there’s an obvious appeal to keeping things ticking over until the markets improve, and hoping you can thrive better then. 

I think of this like a candle because it’s a small flame, not trying to grow bigger, but not going out. If you need to add fuel or even move the little flame from one place to another (pivot, merger with another small company, etc.) you can do that. 

Option 2: Star or a Meteor? Let’s Find Out

A small number of companies are eschewing the candle path and blazing their own trail instead. They’re continuing to put money into growth, in sales, in partnerships, in innovation and in marketing, and they’re determined to grow no matter what the conditions are. 

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I think of this as the Star/Meteor option, because they’re burning with a bright, confident flame. That’s no guarantee of success; for every successful star there might be ten meteors that crash and burn. But either way, these are companies determined to make their mark. 

In a market like the one today, it’s very easy to see these companies standing out. They’re leading, rather than looking around to see what everyone else is doing. It doesn’t bother them that they’re bucking the trend. 

It’s my guess that entrepreneurs whose companies burn out as meteors now will have learned a lot from this process, and come back with that added experience and knowledge soon afterwards with a new idea. Those who succeed, will have companies that are true stars, burning brightly for years if not decades to come. 

Lead or Be Led? Choose Your Direction Thoughtfully

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Which path is most appropriate for any individual company depends on its financial picture, growth stage, product-market fit, audience enthusiasm, and industry. 

As one of the partners of Maverick Ventures Israel, a Tel-Aviv based VC firm, I see and talk to a lot of founders and companies. I see candles, stars and meteors. From my perspective, they’re all good for the ecosystem. 

What’s important is that companies do think seriously about this choice, and not become candles without thinking about it just because that’s what everyone else is doing. If you are in the fortunate position of having a product, team and tech moat you’re confident in for good reason – the star/meteor path might be right for you. 

For some companies, the right thing is to keep things ticking for as long as possible so that they can be in as strong a position as possible when the conditions turn around. Making sure the company has strong foundations and happy customers is the best way to position well for that future. There’s no shame in being a candle. 

Don’t Drift; Take Decisions

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What I do caution against is companies trying to keep things going when they know, based on their metrics and lack of traction, that they aren’t really going to make it and ultimately drive value for shareholders. 

It’s best for everyone involved and for the ecosystem as well, not to keep throwing good money after bad. Better to try something new or different to see if you can turn things around – or, alternatively, shut up shop and return the funds and talent to find homes elsewhere. I’ve talked before about the accelerated natural selection that’s happening now and why it’s positive for the industry as a whole.

Boards and advisors who continually try to push every company down the Candle path do a disservice to the founders, the companies and the shareholders. It’s right for some companies. But it’s not right for everyone. 

Crunch Times Can Create Opportunities for Transformation

Are you (or the companies in your portfolio) a candle, a meteor, or a star? If you don’t know the answer, it might be time to think about it. 

If you’ve been choosing one path so far on instinct, take a pause and reflect. Are you content with your current direction? If not, should you be? If you’re a candle and want to become a star – what would it take to get there? What would need to change?

Whatever you choose, make sure you’re not just following the prevailing winds. It’s crunch time in hi-tech. Don’t let others make key decisions for you. Don’t be led. Lead.