Israeli startups have continued to innovate, receive venture capital investments, and get acquired in the first half of 2024, all while contributing to the country’s defense since the October 7 Hamas attack. The steady increase in the size of private investments in Israel has accelerated in Q2, reaching $2.8 billion. It was the highest quarterly amount since the third quarter of 2022, driven by a small number of mega rounds (fundraising of $100 million or more) and cybersecurity startups. At the same time, the decline in the number of active investors in Israel, both Israeli and foreigners, has continued, according to Rise, an Israeli non-profit think-tank.
Two of the most active Israeli VCs, Jon Medved of OurCrowd and Eyal Niv of Pitango, discussed the state of Startup Nation at the Cyber Week 2024 conference in Tel-Aviv last month. “The war came at a particularly bad time in the business cycle, a global downturn in the investment in venture capital-backed companies,” said Medved. But, he added, “the strong Israeli companies are not just plowing through the fog of battle and the troubles in the global environment. As a matter of fact, many of them are prospering.”
The strong Israeli startups continue to demonstrate the unique Israeli talent and expertise in specific sectors such as cybersecurity: “If you look at the last 14 exits in cyber, 13 of them happened here in Israel. During a war, people are buying companies for the long term here in Israel, which is amazing. And I think that around 50% of every cent that goes into cyber, is attracted to Israel,” observed Niv.
Medved pointed out, however, that “the guys who are suffering,” are the early-stage companies, the startups that were launched recently or the ones that are looking for their first round of financing. To assist these startups, OurCrowd established the Resilience Fund, focused on Israel-based startups, including Incubator companies, that are negatively impacted by the war and/or produce technologies relevant to the challenges Israel is facing at present. OurCrowd waived all management fees and carried interest on investments in the fund. With almost $20 million deployed, the fund has made 46 funding commitments to date, unlocking over $100 million in matching funding.
For their part, Niv and others in the Israeli tech ecosystem established the Israeli Children Fund, which supports the 414 Israeli children who have lost one or both parents (all civilians) during the October 7 massacre. The fund provides up to $200,000 per child to support key life milestones, managed by an experienced grant committee in collaboration with government agencies and other nonprofits to maximize impact. “It is a springboard for life as if their parents were here,” said Niv.
Israel’s central bank predicted earlier this month that Israel’s GDP will grow at 1.5% in 2024 and 4.2% in 2025. Israel’s startup ecosystem will play an important role in the keeping the economy growing despite the ongoing war. Israel’s tech sector employs more than 14% of all workers in Israel, produces over 18% of Israel’s GDP and 30% of all tax revenues, and accounts for about 50% of Israel’s exports.
In addition to cybersecurity, key contributors to Israel’s GDP could be the Israeli startups in the sector which at present is attracting a significant share of global VC funding. The 2024 AI Index report from Stanford University placed Israel in the top spot for AI talent concentration in a geographic area. There are now hundreds of Israeli startups using AI in diverse domains such as cybersecurity, healthcare, consumer applications and data infrastructure. AI21 is a leading developer of a foundation model for generative AI, recently raising $208 million Series C, with $336 million in total funding to date. Hailo, a developer of AI chips for edge devices, recently raised $120 million at a $1.2 billion valuation. Last month, Globes reported that Hailo “could be heading for a huge Wall Street IPO.”
While these and other stars of the Israeli tech landscape ensure the continued success of Israeli innovation, the war has its consequences. In addition to the continuous decline in the number of active investors in Israel, the Rise reports points to “a growing concern, especially in the last quarter… that the international isolation Israel is experiencing will hurt the high-tech sector.”
Hanan Friedman, CEO of Israel’s Bank Leumi, has an answer to investors worried about the present and future state of Israel and its startup-depended economy: “The economy continues to show good signs by international standards due to the resilience of Israeli citizens and Israeli youth… The young Israelis who returned from the war… returned to their workplaces with groundbreaking initiatives and a drive that will help propel the industry forward.”
Resilience and drive have served Israel well during the many previous crises during its 76 years of existence. Surveying the “countless daily human activities worldwide that were made routinely possible thanks to Israeli inventions,” Galit Hemi and Sophie Shulman wrote in The Israeli Mind: The Story of Israeli Innovation (2018): “Millenia-old Jewish DNA of persistence and hope, coupled by a survival instinct, a long tradition of restless learning, and a fresh and burning ethos of hard work… produced Israel’s current innovative stance.”
Speaking at the Cyber Week 2024 conference, former Israeli prime minister Naftali Bennett talked about “the single most valuable resource” that is needed in today’s tough world—people, the right kind of people. What the Israeli experience has shown since October 7 is that the young men and women of Israel are both innovative—flexible, dynamic, resourceful—and resilient, the type of young people the whole world needs today and in the future. “Israel is the breeding ground for the super entrepreneurs of the next 50 years,” said Bennett.