VC Fund NFX Halts External Fundraising to Shift Toward Personal Investments

In late September, venture capital fund NFX announced a major shift in its operating model. The firm will stop raising additional capital from external investors—primarily foreign institutional entities and American funds—and will instead focus entirely on managing its existing portfolio.

Once the fund allocates all remaining capital raised from limited partners, the partners will begin investing out of their own pockets and writing smaller checks. Rather than massive investments of tens of millions of dollars in a single company, they will pursue personal, micro-scale investments ranging from 100,000 to 3 million dollars, without taking board seats or leading funding rounds.

Among the co-founders of NFX is Israeli entrepreneur Gigi Levy-Weiss, an early investor in tech giants like Playtika and SunFlower, and former CEO of 888. In a blog post on the fund's website, the partners explained that the world has changed, the venture capital ecosystem has evolved, and with artificial intelligence transforming how startups are built, the traditional large-fund model is being questioned.

This structural transformation also means NFX will become leaner, increasingly leveraging AI tools for investment sourcing and portfolio management. The staff has already been notified that they will need to transition to new workplaces, while several partners and investment managers are exploring independent fund-raising efforts or new career opportunities.

NFX drew inspiration from a 2022 move by American fund Homebrew, where the partners decided to stop raising outside capital and invest independently. A similar trajectory was pursued in Israel by the veteran fund 38North, founded by Arnon Dinour, Gil Goren, Yoram Snir, and Laurel Bowden.

A Market Talking Point

Yet, the decision made by Levy-Weiss and his partners has become a focal point of discussion within the local venture capital market. Many industry peers view the move as both logical and enviable. First, because the partners—including former Meta executive Stan Chudnovsky—possess the personal wealth to invest substantial sums independently; second, because it severs reliance on traditional limited partners (LPs).

"Institutional and limited partners are disappointed with the returns generated by most veteran Israeli venture capital funds, as well as small and mid-sized funds globally, channeling their capital instead toward Silicon Valley mega-funds capable of capturing Israeli unicorns at every lifecycle stage," notes a senior Israeli venture capitalist who requested anonymity.

"Here and there, you find funds led by well-connected younger investors who prove they have access to major American players, such as Omri Casspi in Israel or Quiet Capital in the US. There are also specialized funds that deliver true added value, like Cyberstarts led by Gili Raanan," the source added.

A Bleem Funding Landscape

According to a report published by IVC Research Center and the Israel Innovation Authority, the venture capital fundraising picture in Israel remains particularly grim. Israeli funds raised a mere 630 million dollars in the first half of the year, tracking at roughly half the 2.5 billion dollars raised last year despite ongoing wartime conditions.

While fundraising figures have since ticked up to 1.4 billion dollars, with IVC projecting total annual inflows of around 2 billion dollars, this remains roughly 70 percent below the peak recorded in 2021. Meanwhile, the Israeli tech ecosystem requires significantly more capital today to fund hardware-heavy and expensive artificial intelligence projects.

Industry insiders believe other local venture funds will soon follow NFX by abandoning traditional institutional fundraising to operate more independently or exiting the market entirely.

"Most Israeli funds are facing a severe existential dilemma," says a partner at a prominent local fund. "American mega-funds like Sequoia, Andreessen Horowitz, Lightspeed, Bessemer, and Aledes are directly targeting coveted Israeli entrepreneurs. These giants lead the massive funding rounds, and Israeli founders naturally gravitate toward them. There are very few high-quality companies, usually founded by seasoned entrepreneurs who realize their strong appeal to American funds eliminates the need for local intermediaries."

This dynamic is clearly illustrated by the dominance of US mega-funds in Israeli unicorn exits. The primary beneficiaries of Wiz's 32 billion dollar acquisition by Google were foreign funds including Index Ventures, Sequoia, Insight Partners, Thrive Capital, and Andreessen Horowitz. The sole Israeli presence at the table was Cyberstarts, spearheaded by former Sequoia partner Gili Raanan.

Investment Conservatism

Another frequent criticism directed at traditional Israeli venture capital is its conservatism regarding artificial intelligence and deep-tech investments. "Fund partners thrived during the golden eras of ad-tech, online commerce, cloud computing, enterprise software, and cybersecurity. However, they lack deep expertise in deep-tech, semiconductors, and hardware—sectors that are rapidly dominating the AI era," a senior industry executive observed.

"Cybersecurity continues to capture 40 percent of capital, but the vast majority flows through American funds or Cyberstarts. Many local market players are seeking to pivot their business models or transition to industries outside venture capital altogether."

Compounding the trend, Israeli institutional investors have significantly scaled back their commitments to local venture funds, preferring direct exposure to premier US deals. Earlier this year, Clal Insurance and Harel-linked institutions deployed 170 million dollars into Anthropic's private funding round, while at least one Israeli institutional investor participated in a mega-round for competitor Cognition alongside Omri Casspi.