In Israel alone, there are approximately one hundred VC funds that invest in ventures and startups at various stages, from initial investment to advanced fundraising rounds. While some funds invest in overlapping fields such as cyber, HLS (Homeland Security) and dual-use technology, there is no dedicated commercial VC fund solely focused on defense and military applications.
The absence of such a fund is striking considering the potential for significant returns on investment in the defense sector. Many individuals within the business ecosystem would eagerly invest in the next “Mobileye” – a prominent Israeli autonomous driving technology company – and compete for the opportunity to invest in early rounds. However, the lack of interest in becoming shareholders of the next “Iron Dome,” a strategic and advanced national pride, raises questions. Shouldn’t the military and defense sector be seen as a valuable business opportunity as well?
In 2023, Israel’s three largest defense industries, IAI, Elbit Systems, and RAFAEL, saw record profits. Looking ahead to 2024, the global geopolitical landscape suggests a broad business impact in defense, HLS and aerospace sectors. Factors such as the military conflict between Russia and Ukraine, tensions surrounding Taiwan’s coast, economic shifts impacting investments in areas like crypto and niche social media, and the focus on mature technologies in response to concrete needs all contribute to the growing significance of the military and defense ecosystem.
And of course, the “Iron Swords” war which began in October 2023 and continues to this day greatly affects the industry and the market.
Established venture capital funds seeking to diversify and hedge their investment portfolios are urged to consider the potential of investing in companies solely focused on military and defense fields. From machine learning and computer vision-based navigation systems to hardware for military operators and first responders, as well as unmanned platforms for military & HLS missions, these technologies have a substantial commercial market both in Israel and worldwide. Additionally, there is government and private support, such as the SIBAT department, for commercially mature defense products and services.
However, to bring these startup companies to the stage of commercial maturity, they need funding, just like their civilian market counterparts developing technologies for smart vehicles or language model-based applications. This article serves as a wake-up call for existing and new funds to explore the investment potential in military technology niches. The defense business market is on the rise, likely to face minimal obstacles and hindrances in the coming years.
In conclusion, the time is right for venture capital funds in Israel to recognize the untapped potential in military, defense, HLS, and aerospace products and services. By venturing into these sectors, not only can VC’s diversify their portfolios, but they can also contribute to the growth of the defense ecosystem while reaping significant financial rewards. The fusion of entrepreneurship and military technology holds immense promise, ensuring Israel’s continued leadership in innovation and strengthening its national security.