As Israel grapples with an unprecedented multi-front conflict, fighting Hamas in Gaza, Hezbollah in Lebanon, Houthi rebels in Yemen, and Iranian-backed militias in Syria and Jordan, while preparing for potential direct military engagement with Iran, questions have emerged about the resilience of the country’s formidable tech sector. The high-tech industry, which plays a pivotal role in Israel’s economy, contributing over half of the country’s exports and a fifth of its GDP, also supplies about 20% of the reservists for the Israel Defense Forces (IDF). This dual role, as both a driver of economic growth and a vital contributor to national defense, places Israel’s tech industry at a critical juncture as the nation faces these escalating threats.
Despite these enormous pressures, Israel’s tech sector has demonstrated remarkable resilience. Analysts have noted that the sector, particularly in defense and cybersecurity technologies, has not only weathered the initial shocks of the conflict but also found new ways to thrive. This resilience is providing crucial support to Israel’s war-torn economy, although many experts caution that the long-term sustainability of this situation remains uncertain.
The Israeli tech sector, renowned globally as a center of innovation and entrepreneurship, accounts for approximately 18% of Israel’s GDP. By comparison, the tech industry comprises about 10% of GDP in the U.S. and 6% in the European Union. In Israel, the sector produces 50% of all exports and contributes 30% of domestic tax revenues. The country’s reputation as the “Start-up Nation” stems from its exceptional capacity to foster technological innovation and attract venture capital. With 2,000 start-ups launched in the last decade, and thousands of small to medium-sized tech companies alongside multinational R&D centers, Israel has built a highly dynamic ecosystem that is deeply integrated into the global technology market.
Israel’s tech ecosystem is also heavily focused on research and development (R&D). The country ranks first worldwide in terms of R&D expenditure per capita, investing approximately 6% of its GDP into research—far higher than the global average. This significant investment has created an unparalleled concentration of engineers, scientists, and academics, laying the foundation for cutting-edge innovation. A unique aspect of this ecosystem is the technical training many young Israelis receive during their mandatory military service. For many, this serves as a critical springboard into high-tech careers, fostering a culture of entrepreneurialism deeply connected to the country’s defense infrastructure.
The current conflict has tested the resilience of Israel’s tech industry like never before. The story of Ophir Dror, a co-founder of the cybersecurity start-up Lasso Security, exemplifies the pressures the sector is facing. Dror was drafted into the Israeli army on October 7, 2023, his birthday, just as his company was coming out of stealth mode. “For four or five months, I was not available. I was in Gaza, I couldn’t even jump on Zoom calls,” Dror explained in an interview with The Times of Israel. With one of Lasso’s founders fundraising to cover military equipment shortages and the company’s operations at a near standstill, it seemed like a moment of crisis for the fledgling start-up. Yet, despite these obstacles, Lasso Security secured the necessary funding to continue developing its product and nearly tripled its workforce during the war.
This remarkable growth is not an isolated example. Numerous reports suggest that, despite the immense challenges posed by the conflict, Israeli start-ups and tech firms are adapting. Entrepreneurs, investors, and employees have been relentless in their efforts to sustain and grow the tech powerhouse that is a crucial pillar of Israel’s economy. This has been achieved in no small part thanks to the strength of Israel’s defense and security-related tech, sectors that have seen a surge in demand as global interest in military technologies intensifies.
Despite fighting on multiple fronts, Israel remains one of the top global hubs for venture capital investments. In 2024 alone, more than $4.5 billion was invested in Israeli tech in the first six months, putting the country on track for nearly $10 billion in investment by year-end—a nearly 50% increase compared to previous years. This growth is exceptional, especially considering the challenging geopolitical climate.
One surprising element in this trend is the sustained level of foreign investment in Israeli tech firms. Despite concerns that international sentiment toward Israel might be turning negative due to the protracted conflicts, foreign investors have continued to back the country’s tech industry. Start-Up Nation Central reports that foreign investors were involved in 93% of all funding rounds in the first half of 2024, a seven-year high. Many of these investments are flowing into Israel’s cybersecurity sector, which attracted 52% of private funding during this period. Cybersecurity mergers and acquisitions alone accounted for $1.5 billion across nine deals, with Israeli firms participating in 13 of the 14 major cybersecurity acquisitions globally during the same timeframe.
The increasing demand for cybersecurity solutions has positioned Israel as a global leader in the sector. Industry insiders, such as Jon Medved, CEO of the Israeli venture capital firm OurCrowd, highlight how crucial cybersecurity has become to the global economy. Medved notes that major global players like Google have shown immense interest in Israeli cybersecurity firms, citing the example of Wiz, a company valued at $12 billion that reportedly turned down a $23 billion acquisition offer from Google. Had it gone through, the deal would have been Google’s largest ever acquisition and the biggest in the history of the cybersecurity industry.
Defense technology, too, has become a critical area of focus. Israel is already one of the top five defense technology exporters in the world, and the ongoing conflicts have heightened investor interest in this area. Many of Israel’s defense-tech entrepreneurs have military backgrounds, which ensures the technology they develop remains highly relevant to real-world defense needs. The war in Ukraine and instability in Europe have also fueled global interest in defense technologies, creating significant opportunities for Israeli firms.
The symbiotic relationship between the Israeli military and the tech industry has long been a driver of innovation. Military service equips many Israelis with the technical skills and operational experience that they later translate into civilian applications. This dynamic has been instrumental in helping Israel’s tech sector maintain its edge. Companies like Elsight, which specializes in drone technology for defense purposes, have shifted their focus entirely to military contracts. Elsight now earns over half its revenue from defense deals, a significant increase from its pre-war levels.
While Israel’s tech sector has shown extraordinary resilience, there are signs that the prolonged conflict could eventually take a toll. A survey conducted by Israel Advanced Technology Industries (IATI) in mid-2024 revealed that 65% of venture capital funds reported challenges related to their Israeli identity, and more than 30% of tech companies have moved part of their operations abroad. This suggests that, despite the current optimism, the sector may face significant hurdles if the war drags on.
The impact is already being felt in other areas of the economy. Moody’s, the global credit rating agency, recently downgraded Israel’s government bonds by two notches, citing concerns over the country’s ability to manage its debt while financing a prolonged military conflict. Some tech firms have also begun to lay off workers as global economic uncertainty weighs on their long-term prospects.
Even Jon Medved, a noted optimist in the Israeli tech world, acknowledges that the situation could change if the war continues. “If we don’t put this war to bed sooner rather than later, things could change,” he said, highlighting the precarious balance the tech sector must maintain.
Despite these challenges, the Israeli tech industry remains a critical engine of growth and innovation for the country. Defense and cybersecurity-related technologies are the brightest spots in the current economic landscape, and the strength of these sectors has provided a buffer against the worst effects of the conflict. While the future is uncertain, Israel’s tech leaders continue to show remarkable resilience and adaptability, ensuring that the country remains a global powerhouse for innovation even in the face of war.
