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While the Israeli startup community basks in the glow of Waze’s recent $1.1 billion sale to Google, most of the discussion has focused on how Waze validates Israel’s effort to create hugely valuable, globally scaled consumer internet services — a relatively new field for an ecosystem that previously excelled in semiconductors and enterprise software. (Others might argue one highly-valued acquisition that just crossed the $1 billion mendoza line out of tens of thousands of attempts does not a track record make…)

But there’s another aspect to the Waze sale that local VCs Michael Eisenberg and Eden Shochat surely didn’t miss: The biggest investor wins in the Waze exit went to Magma and Vertex, the two Israeli firms that participated in Waze’s relatively modest Series A round back in 2008.

Eisenberg and Shochat, two of Israel’s most respected VCs in the Internet/mobile space, today announced that they’re leaving their partnerships at their larger firms to start a new, Series A-focused $140 million fund called Aleph – the first letter of the Hebrew alphabet and a symbol representing infinite sets in set theory.

Eisenberg was formerly at Benchmark and Shochat was formerly at Genesis. Eisenberg leaving Benchmark is not a big surprise. The firm has decided not to raise a third Israeli fund and is currently winding down the second fund, which Eisenberg will continue to help with.

The new fund is a sign of the times for Israeli venture capital, and Aleph will likely become a major new player in local early stage deals.

Capitalism tends to be very efficient on the investment layer: Money flows to where it’s treated well until that advantage gets competed away or until a structural change renders it unwelcome. Right now in Israeli Internet startup financing, big VC money is treated poorly, as large fund economics rarely work. Smaller angel money is treated much better, but angels suffer from increasing competitive pressure after a couple years of heavy activity. That’s left a big gaping hole in the middle – the much-discussed Series A crunch – and a compelling opportunity for smart money. 

The Aleph partnership also underscores how VC blogging pays dividends. Eisenberg tells me he first met his new partner Shohat, whom he lauds as “the best young VC in the country,” when Shohat reached out to respond to Eisenberg’s Hummus Manifesto blog post series on the state of the Israeli tech market. Shohat was particularly interested in Eisenberg’s critique of Israel’s Microsoft-centric software culture, as he was working on an open source project of the sort Eisenberg argued should be promoted more heavily here. They’ve since done one deal together, which went well enough to give them confidence in launching Aleph together. 

Eisenberg and Shochat say they’ll continue to serve of the boards of companies they invested in through their former firms – an unusual arrangement. Eisenberg’s more successful investments at Benchmark include Conduit (recently valued at over $1 billion), Wix (which recently filed for an IPO), Gigya, and my former employer Seeking Alpha. Shochat was cofounder of Face.com – acquired last year by Facebook for north of $50 million, and sits on the board of Any.DO and Commerce Sciences (which I profiled here).

Venture capital is of course primarily a relationship business, and Eisenberg and Shohat have very strong ties and stellar reputations among the constituencies that matter: on the dealflow end, Israeli entrepreneurs and local angels, and on the flip side, industry relationships and institutional investors for follow up financing – including the larger Silicon Valley and Israeli funds they just walked out of on, it seems, very good terms.

Bruce Dunlevie, one of Benchmark’s founding partners, will advise Aleph as a “special partner” and Aleph for the time being is working right out of the current Benchmark office perched above Tel Aviv’s Rothschild Boulevard. Rip Empson has it that Benchmark actually invested in Aleph, but Eisenberg wouldn’t confirm that to me.