Resilience of Israel’s Tech Sector During Ongoing Conflict

By Steven Scheer
JERUSALEM (Reuters) – Israel’s tech sector has shown resilience amidst a year-long war with Hamas. However, reliance on large companies and foreign investment brings funding uncertainties that could impact the broader economy, according to a government report released on Monday.

Since the conflict began on October 7, Israeli tech firms have successfully raised approximately $9 billion, positioning the country third behind Silicon Valley and New York for tech funding, as reported by the state-funded Israel Innovation Authority (IIA).

Dror Bin, CEO of the IIA, stated, “The level of investment remained stable compared to the same period before the war.” This indicates that despite increased risks, investors continue to see potential in Israeli startups.

The high-tech sector plays a crucial role in Israel’s economy, contributing to 16% of employment, over half of the nation’s exports, a third of income taxes, and 20% of the overarching economic output.

Concerns have arisen regarding stagnant employment in this sector, which may limit income tax revenue at a time when the state requires funding for the war efforts. Additionally, investment is heavily skewed toward mature startups and cybersecurity, with other areas facing challenges. Bin noted, “We are looking at something that might evolve to be a problem,” indicating that many deserving companies are currently struggling for funding.

To support smaller startups, the IIA has initiated various programs aimed at sustaining their operations. Bin forecasts a potential “baby boom” of new defense tech startups thereafter.

He maintained, “The fundamentals of the tech sector remain unchanged since the war began. Once this conflict concludes, we anticipate a rebound.”

The IIA’s report aligns with earlier findings from nonprofit Startup Nation Central (SNC), which observed thriving larger tech firms but warned of long-term sustainability issues due to the enduring conflict and the government’s economic policies, viewed by many as harmful.

Recent Israeli media reports suggest that the 2025 budget might reduce tax incentives for foreign tech investors.