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Saturday, December 2, 2023

The State of Consumer Tech in Israel in 2023

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While Israeli startups successes are well known in the B2B space (cybersecurity, enterprise tech, devops…), B2C startups are unsung heroes… The landscape of B2C tech in Israel is blossoming, despite several challenges. Whether it’s gaming, commerce/ DTC or creator economy, there are many Israeli startups selling at over $10M and even $100M in annual revenue. As previously highlighted on VC Cafe (based on research by Sapphire Ventures), while many funds avoid B2C investments, consumer startups can create extremely lucrative power-law returns for venture capital investors.

Israeli B2C – Let’s start with the high level picture.

I recently attended the Meta Marketing Summit in Tel Aviv, which shined a spotlight on Israeli B2C tech. Meta of course has an interest in championing B2C startups – most of them use Meta for user acquisition (it’s easier to acquire consumers on consumer platforms like Meta and Instagram, which drives a big proportion of Meta’s revenue.

Here are some high level numbers that might surprise you:

  • There are 2,500 B2C startups in Israel
  • They represent 30% of the Israeli tech ecosystem
  • Out of all the Israeli startups founded in 2022, 35% were B2C startups
  • 30% of Israeli unicorns are B2C startups
  • B2C startups in Israel took 20% of the ‘mega’ rounds
  • Funding to Israeli B2C startups increased 7x over the past 10 years (compared to 5x in B2B startups).
  • Meanwhile in the US, B2C startups raised $100 billion in 2022, 40% of the total funding.

B2C Venture Capital Investments in Israel

To the most part, Israeli VCs shy away from B2C startup investments. So much so, that Meta recently launched a program to educate Israeli VC funds on the opportunities in the consumer market. According to the figures presented in the conference, approximately 25% of total VC investments goes to B2C startups.

Israeli B2C champions

Back in 2018, when I last published the state of Israeli B2C startups on VC Cafe, I included success stories like Fiverr, Gett, Lemonade, MyHeritage, Houzz, Bizzabo and others. Much has changed since then. Many exited or IPO’d (and subsequently lost much of their value in the recent downturn), but new success stories have also emerged. And new technologies, like generative AI, are creating new opportunities for founders to stand out in the consumer space. I wanted to highlight a few of the ‘old school’ B2C success stories, several of them are “Centaurs”, or startups that passed the $100M revenue mark. But I also wanted to highlight some of the emerging B2C startups that have received less international recognition, but are on a promising track.

The “old school” Israeli B2C incumbents (source: VC Cafe)

10 established Israeli B2C leaders

  1. AI21 Labs – developer of the Jurassic LLM (small rival to GPT) and Wordtune, a generative AI writing assistant for documents (raised to date: $118M)
  2. eToro – fintech portal for financial news, e-trading and crypto (raised $464M to date)
  3. K-Health – a personal health assistant powered by AI, helps patients triage symptoms for remote doctor consultations (raised to date $333M)
  4. Minute Media – a UGC content platform for sports, providing the voice of the fan and the voice of the player across multiple brands in soccer, NFL, NBA, MLB, eSports, etc. Crossed the $200M in revenue and reached over 400 million unique users. (disclosure: Remagine Ventures is an investor).
  5. Maelys – creator of direct to consumer cosmetics for women (focused on body reshaping), already passed the $100M mark in revenue.
  6. Moon Active – the casual games studio and creator of the hit game coin master, was rumoured to make $500M in Ebitda in 2022.
  7. Papaya gaming – the skill gaming platform that enables players to compete with one another to win cash wagers. Surpassed the $100M revenue mark in 2022.
  8. Simply (formerly Joytunes) – the suite of music teaching apps (piano, guitar and singing) app passed the $100M revenue from consumer subscriptions in 2022.
  9. Lighttricks – the suite of mobile apps for photo and video editing, and most recently generative AI photo and video generation. Passed the $100M revenue mark in 2022.
  10. Mixtiles – turn your photos into framed wall art. I might be biased as a user, but it’s a great product and service. Funding undisclosed.

You can find more ‘old school’ Israeli B2C startups in Dan Eblagon’s 2019 post.

10 up and coming Israeli B2C champions

  1. Riverside.fm – an online podcast and video studio (founded in 2019, raised $47M to date)
  2. Lumen – the world’s first hand held device to track your metabolism using your breath (founded in 2014, raised $80M to date)
  3. Sightful – creators of the Spacetop, the world’s first AR computer, without a physical screen, but with a 100 inch virtual screen (founded in 2020, raised $61M to date)
  4. Faye – consumer centric travel insurance. Faye said it has generated “millions” of dollars in premiums during its first year and expects to quadruple revenue in 2023. (started in 2019, raised $18M to date)
  5. Atly – a community based map, designed to help people discover their next favorite place by providing insights shared by others with similar interests (founded in 2018, raised $33M to date)
  6. Candivore – an Israeli gaming studio, developer of Match Masters, a competitive match-3 puzzle game. The company recently reported it passed 50 million installs and $200M in revenue. (founded in 2018, raised $22M to date)
  7. HourOne – generative AI tex-to-video based on human presenters. HourOne’s video creation platform powered by AI to train anyone or explain anything. The first company to launch an app to capture yourself as a virtual character. (Founded in 2019, the company raised $25M to date). Disclosure: I’m an investor and board member via Remagine Ventures.
  8. Empathy – digital companion for navigating bereavement. (founded in 2020, the company raised $43M to date)
  9. Spiritt – text to mobile app. (founded in 2019, raised $13.5M to date)
  10. Zoog – a mobile app to connect families, using AR. One of the first companies (outside of Disney) to get access to the Snap Camera SDK, Zoog has some of the best conversion metrics I’ve seen for a B2C consumer app. Disclosure: a Remagine Ventures portfolio company. (Founded in 2020, funding undisclosed)

The challenges of B2C startups and what’s next for Israeli B2C

Funding is not easy for any startup, but it gets even more challenging for B2C startups. Investor expectations on user validation are high, and founders have to navigate the challenging battle of acquisition, retention and churn, while maintaining healthy CAC/ LTV ratios.

While a lot of startups choose to remain in stealth, I’m excited about the new crop of generative AI startups in Israel that are either creating B2C products, or helping other B2C startups scale with the power of AI. From AI generated ads / creative, to conversion optimisation tools, automated customer success and automated pricing/ promotions to increase revenue.

It’s also important to mention that the talent in this space has massively increased in the past 10 years. We are now seeing the alumni of some of the old school companies, as well as former employees of the tech giants that gained B2C experience, form their own companies and bring their best practices into the market.

As one of the few funds that invests in Israeli B2C startups at the earliest stage, I believe the future of Israeli B2C tech is bright.

Eze is managing partner of Remagine Ventures, a seed fund investing in ambitious founders at the intersection of tech, entertainment, gaming and commerce with a spotlight on Israel.

I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.

I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.

Eze Vidra
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