Israeli High-Tech: Resilience, Innovation, and Opportunities – An article by EBN

Israel’s high-tech sector continues to thrive in 2024, demonstrating remarkable resilience and adaptability despite ongoing geopolitical instability, war on several fronts, and global economic challenges. Over the past year, Israeli startups raised approximately $9 billion, maintaining a steady level of investment similar to previous years, excluding the record-breaking periods of 2020-2022. This data from the Israeli Innovation Authority underscores Israel’s continued leadership as a global hub for venture capital.

Roy Caner, Partner at EBN – Erdinast, Ben Nathan, Toledano, highlights the ongoing opportunities in the market, particularly noting that global investors like Sequoia, Greylock Benchmark, and others are reinforcing their commitment to Israel by placing a person on the ground or recruiting Israeli professionals in the Valley. “Placing people on the ground here sends a clear message that Israel remains a hub for groundbreaking innovation and that the best US VCs want people positioning to enable them to compete on the best ventures and teams,” Roy Caner notes.

Active Investment in Seed and Cybersecurity

Seed-stage investment remains an active area, with both local and international funds continuing to show interest in Israeli entrepreneurs. This trend is particularly evident in sectors like cybersecurity, which have retained investor attention despite the current challenges. A notable example is Sequoia Capital, the American venture capital firm, which has reaffirmed its commitment to Israel during a period of geopolitical uncertainty. Known for early investments in companies like Apple, Airbnb, and Stripe, Sequoia has appointed Dean Mayer as its representative in Israel.

“Cybersecurity has become a critical component of global security, and Israeli startups are leading the charge,” Roy Caner continues. “Investors recognize that strong founding teams, not just ideas, are what make or break a startup in this space. They will invest in teams before a clear product is fully conceptualized.”

Despite these continued investments, external funding remains challenging for many startups in certain sectors. While seed-stage investment is active, geopolitical and economic uncertainties have added complexity to the fundraising landscape. In this context, the persistence of intense interest in cybersecurity startups highlights the sector’s resilience even amid external pressures.

M&A Activity: Domestic and International Dynamics

Notwithstanding existing challenges, mergers and acquisitions (M&A) have prospered, particularly in cybersecurity. Global giants and domestic firms are acquiring innovative Israeli startups, solidifying Israel’s status as a critical player in the sector. According to a recent report by Vintage Ventures, the value of M&A deals in the past year reached a new record high of approximately $10.5 billion, marking a 22% increase from the previous record of $8.6 billion set in 2021. This surge highlights the ongoing strength of Israeli tech companies, with international acquirers continuing to recognize the value of acquiring innovative startups and more mature technology companies across various industries, including cybersecurity, AI, and defense technologies.

“Our firm has been involved in significant transactions this year,” shares Roy Caner. “These include, among others, Beyond Trust’s acquisition of Entitle and Permira’s control acquisition of Biocatch.” This activity underlines Israel’s continued appeal to global and local acquirers despite the uncertainties.

Navigating Challenges: Operational and Financial Strategies

The geopolitical landscape has added operational pressure on companies, especially those with employees on reserve duty. However, Israeli firms’ adaptability has enabled them to maintain minimal disruptions.

“Small teams working under tight deadlines are undoubtedly affected,” says Roy Caner. “Yet, Israeli companies have proven their resilience time and time again. This adaptability ensures long-term growth, even when short-term challenges arise.”

Financially, many startups find it more challenging to raise funds externally, but existing shareholders are stepping up to support their companies. “In some cases, we are seeing pay-to-play structures designed to incentivize ongoing investments, while, in certain cases, management carveouts are being utilized to ensure employee engagement, even amid down-round valuations,” says Viva Gayer, Partner, Co-Manager of the Corporate and M&A Department at EBN.

Defense Tech and Climate Innovation on the Rise

The conflict has also catalyzed the growth of defense technology. Shay Dayan, Partner in the Corporate and M&A Department of EBN, says. “The geopolitical tension served as a testing ground for new technologies, accelerating the development of solutions like drones and tunnel-detection systems. Many startups have validated their innovations under real-world conditions, significantly enhancing their credibility with global defense markets.”

In parallel, the climate tech sector is gaining momentum. With the global push toward sustainability, investors increasingly focus on companies that offer scalable, impactful solutions. “Climate tech is emerging as one of the next big sectors,” says Shay Dayan. “This is a space where technology can have not only financial returns but also a lasting positive impact on the world.”

Diversified Investments: From Seed to Scale

As the Israeli high-tech sector continues to evolve, there has been a notable shift in the maturity stage of companies attracting investment. While total investments in Israeli technology companies have remained consistent with previous periods, recent data highlights a change in the investment mix. Approximately 60% of the capital raised by Israeli tech companies from October 7, 2023, to October 6, 2024 — around $5.5 billion — was in rounds exceeding $50 million, targeting more mature, established companies. This trend reflects a preference for investing large amounts in later-stage companies with proven business models and scalability, a theme echoed by Viva Gayer, who points out that investors are increasingly attracted to stable, growth-ready ventures. This shift in focus underscores the market’s resilience and continued confidence in Israel’s high-tech sector, even amid challenging global conditions.

Looking Ahead: Opportunities in 2025 and Beyond

Despite current challenges, industry experts are optimistic about the future. The Israeli high-tech sector is poised for growth as Israel moves toward a post-crisis period.

“2025 holds enormous potential,” Viva Gayer asserts. “We expect a surge in investments as stability returns. Funds that have raised capital recently are under pressure to deploy it, likely triggering a renewed growth cycle in the ecosystem.” Shay Dayan shares a similar outlook. “The global market for Israeli tech remains strong, and the entrepreneurial spirit here is unshaken. With Israel’s proven resilience, the coming year holds immense promise for those ready to seize the moment.”

The advice for investors considering the Israeli market is clear: “Do not be deterred by the current situation,” advises Roy Caner. “Israel has weathered many storms before. The strength of its technology and the ingenuity of its people make it a consistently worthwhile investment.”

A Future of Resilience and Growth

As the Israeli high-tech sector continues to navigate complex challenges, its ability to innovate and adapt remains unmatched. Israel consistently demonstrates why it holds a central place in the global tech landscape, whether through groundbreaking advancements in cybersecurity, AI, or defense technology or by fostering a supportive ecosystem for entrepreneurs and innovators.

In 2024, Israel’s high-tech industry attracted $9 billion in investments across various sectors (based on the Israel Innovation Authority), reinforcing continued confidence in its potential. With a foundation of creativity, resourcefulness, and a strong sense of community, the Israeli high-tech ecosystem is poised to shape the future of technology and inspire global collaboration.

Read the full article on Israel Desks Magazine here.