The conflict between Israel and Hamas that began last October had many people worried about the impact it would have on the tech industry in Israel and Palestine. However, after nine months of war, it seems that the startup and VC ecosystem in Israel has actually become more resilient, especially in the cyber and AI sectors, according to conversations with founders and investors.
Israel’s technology sector is a key driver of its economy, employing over 14% of the workforce, contributing more than 18% of the GDP, and accounting for half of the country’s exports as of 2022. Despite the challenges brought about by the war, 11 companies, mainly in cybersecurity and AI, have been acquired for over $2 billion since the beginning of the year. This includes notable acquisitions like Nvidia’s purchases of Run.AI and Desi, as well as Blackstone’s acquisition of Priority. Additionally, cloud security unicorn Wiz, which recently raised $1 billion, is reportedly in talks for a $23 billion acquisition by Google.
However, there have been some setbacks as well. Venture capital investments in Israel are down over 70% year-over-year, and many tech companies had to mobilize their employees into the reserves for the war effort. The education system was also shut down during the initial weeks of the conflict, impacting human capital significantly and making it harder for early-stage startups without revenues to raise funds.
Despite these challenges, cybersecurity and AI startups remain popular with investors. Private funding in Israel saw a 31% increase in the first half of 2024, totaling $5.1 billion, with the cybersecurity sector representing 52% of the private funding. Startups like WIZ, Hailo, and AI21 Labs continue to secure funding, highlighting the importance and attractiveness of these sectors to investors.
Hailo, an AI startup that produces AI processors for edge devices, recently raised $120 million at a $1.2 billion valuation. CEO Orr Danon mentioned that global investors’ sentiment towards the company hasn’t changed significantly over the past few months, but fundraising has become more challenging for founders outside the cyber and AI sectors. Despite the ongoing war, the cybersecurity sector in Israel continues to perform exceptionally well.
Efforts from organizations like the Israel Innovation Authority and OurCrowd have been crucial in supporting startups during these challenging times. For instance, the Israel Innovation Authority launched the Fast Track program, which provided grant money to early-stage startups caught in the middle of fundraising rounds. OurCrowd also launched the Israel Resilience Fund to support startups affected by the war or developing solutions relevant to Israel’s immediate needs.
The use of AI in various industries, including cybersecurity, has become more prevalent than ever before. Many cybersecurity startups are integrating or adopting AI capabilities to enhance their products and better defend against cyber threats. However, it’s essential to proceed with caution, as hackers are also using AI to make us more vulnerable and steal our money and identities.
Overall, the tech ecosystem in Israel has shown resilience in the face of the ongoing conflict, with cybersecurity and AI sectors leading the way in funding and innovation. Despite the challenges brought about by the war, startups and investors are finding ways to adapt and thrive in this environment.
