Israel has managed to maintain its reputation as a startup nation even as the war in Gaza drags on. According to a new report from Startup Nation Central, an organization devoted to using innovative Israeli technology to solve global problems, Israel’s tech sector, in particular, has had a solid first half of 2024. The Media Line spoke with Startup Nation Central CEO Avi Hasson about his analysis of the tech sector’s successes and challenges post-October 7.
The new report from Startup Nation Central shows that private investment in Israel has continued to surge, growing by 31% between the second half of 2023 and the first half of 2024. In the first six months of 2024, private investment in Israel amounted to $5.1 billion, more than half of which came from 14 “mega-rounds” of more than $100 million.
“While we have seen investors becoming more hesitant to invest in Israel, and some even pulling out of Israel, we’ve seen an equal amount, if not more, of investors taking advantage of the opportunity and increasing their activities, both on the ground or through investment in Israeli startups,” Hasson said.
The report explained that early-stage companies have struggled to secure funding, while star startups have faced fewer challenges, especially in the cybersecurity field. According to a recent Wall Street Journal report, Google’s parent company intends to acquire the Israeli cloud security company Wiz for $23 billion. That would be the largest acquisition of an Israeli company ever, Hasson said.
As many companies have transferred their data from physical computers to the cloud, demand for appropriate cybersecurity solutions such as those provided by Wiz has increased.
“Wiz was one of the first companies to really serve those companies migrating into the cloud and needing to face the challenges and cybersecurity threats from that migration,” Hasson said.
Wiz has reportedly brought in annual revenues of $350 million after just five years of incorporation.
“Cybersecurity is experiencing an arms race of the biggest companies, and Israel has an abnormal share of the global cybersecurity companies.”
Startup Nation Central CEO Avi Hasson
Hasson described Wiz as a “prime example” of Israeli tech resilience. “Cybersecurity is experiencing an arms race of the biggest companies, and Israel has an abnormal share of the global cybersecurity companies,” he said.
How significant is cybersecurity to Israel's economy?
In the first half of 2024, cybersecurity accounted for more than half of private funding to Israel. Top Israeli cybersecurity companies include Wiz, Cyabra, Fireblocks, Cyera, and Paragon.
Two Israeli cybersecurity companies, Check Point and CyberArk, acquired other companies this year, Hasson said.
Not counting Wiz, nine Israeli cybersecurity companies were involved in exits in the first quarter of 2024. Those cybersecurity exit deals totaled $1.5 billion, accounting for 35% of the funds brought in by exits in the first half of 2024.
Hasson explained that many large platforms aim to acquire numerous cybersecurity companies to integrate those companies’ services rather than having to rely on many different vendors.
The new report found that as Israel’s share in the global cybersecurity market increased, the US share decreased. In 2018, cybersecurity accounted for 20% of both countries’ funding ecosystems. As time passed, that number dropped to 13% for the US and rose to 25% for Israel.
Is Israel's economy diverse enough?
While that might sound like good news, Hasson said that it also represents an Israeli market that is not diversified enough.
“We are too much concentrated on cyber, fintech, and other subsectors, whereas in the US, we’ve seen a growth of other emerging subsectors, like health, like food, agri, climate, and others, kind of bringing a more diversified picture into the sector,” Hasson explained. “But if you're looking for cybersecurity companies, whether you're an investor or a large multinational, Israel is probably at least one of the most important places where you can find the talent and even the business acumen.”
Europe is also a more diversified economy than Israel, Hasson said.
Since the start of the war, two major US credit rating agencies have lowered Israel’s rating. Hasson explained the discrepancy between those ratings and his report’s positive outlook by describing the factors taken into account by credit rating agencies, including geopolitical risks, fiscal discipline, and political stability.
“The Israeli government has not shown good performance on those aspects,” he said. “So, the public sector has a lot of impact on the credit rating, while the private sector is almost entirely responsible for what we’ve seen in our report.”
Overall, Hasson said, trends in the Israeli economy are positive, with the country gaining control of inflation and interest rates going down.
One question regarding Israel’s economic future relates to the country’s ability to collaborate with its Arab neighbors, especially the Abraham Accords countries. Hasson said that Startup Nation Central has been actively involved in developing cooperative projects around technology and innovation between Israel and Arab countries, including those that don’t have formal relationships with Israel.
“There’s business activity, there’s investment activity,” he said. “It’s happening under the radar.”
Both the private sectors and governments of foreign countries have made clear that they intend to keep collaborating with Israel, even if the ongoing war in Gaza limits the ability to do so, Hasson explained.
“We’re working within those constraints to make sure that the relationship continues, thinking about a broader and a longer-term future,” he said.