The Israeli tech industry has long been seen as a global force, renowned for its innovation, resilience, and ability to thrive amid adversity. The growth of the ecosystem is a story of perseverance, shaped by decades of challenges and crises. From its humble beginnings to its current status as a global center of innovation, Israel’s tech sector has repeatedly defied crises and emerged stronger from the hurdles it has been forced to overcome.
Formed amid a lack of natural resources and deep geopolitical tensions and conflict, Israel was forced to innovate as a way to survive and grow. Necessity, as they say, is the mother of all inventions. In the face of existential threats, our nation’s leaders have always recognized that investing in technology and innovation is key to securing our collective prosperity.
The Start-Up Nation phenomenon is not merely a result of luck but a deliberate strategy crafted amid multiple crises. Mandatory military service, which exposes young Israelis to service, hard work, leadership, teamwork, and technological innovation from a young age, serves as a fertile training ground for entrepreneurship. The influx of immigrants, bringing with them diverse perspectives and expertise, further enriches Israel’s talent pool. Robust government support, including funding for research and development, tax incentives, and a supportive regulatory environment, has provided a crucial platform for start-ups to flourish.
But it is not just the conducive ecosystem that has propelled Israel’s tech sector to prominence; each challenge posed throughout Israel’s history has served as a catalyst for innovation, prompting the development of new technologies and business models.
In the wake of the Second Intifada, a period marked by relentless violence, Israel’s GDP growth rate dropped from 6.4% in 2000 to -0.6% in 2001, and its unemployment rate rose from 8.8% to 10.7%. The tourism, hospitality, and retail sectors were hit particularly hard, and foreign investment and trade declined significantly.
Israeli entrepreneurs leverage their expertise in defense to tackle civilian challenges
However, instead of crumbling, Israeli entrepreneurs and innovators leveraged their expertise in defense technology to tackle civilian challenges. According to a report by the Israel Innovation Authority, the number of start-ups founded in Israel increased from 2,500 in 2000 to 3,800 in 2005, and the number of exits rose from 60 to 89. During this period, we saw massive expansions from companies like cybersecurity leader Check Point and pharmaceutical giant Teva.
The same thing happened during the COVID-19 pandemic. To address the health, social, and economic challenges posed by the virus, Israeli companies developed a range of cutting-edge solutions, including rapid testing kits, remote monitoring devices, contact tracing apps, digital health platforms, and vaccine research. According to a report by Start-Up Nation Central, Israeli health tech companies raised a record $2.4 billion in 2020, a 31% increase from 2019.
THE CURRENT WAR, triggered by the unprecedented attack by Hamas on October 7, poses an existential threat to Israel and its people. The attack, which killed over 1,200 Israelis and took over 240 hostages, exposed the vulnerabilities of Israel’s defense and intelligence systems. The war has also disrupted the normal functioning of the economy, affecting businesses, workers, and consumers alike.
However, as in previous crises, including the political crisis of 2023 with the attempted judicial overhaul, the Israeli tech sector has not given in or given up but has rather risen to the occasion. Despite the challenges and uncertainties, Israeli entrepreneurs and innovators have continued to work, create, and collaborate.
At AION Labs, our venture studio lab focusing on AI and computational biology in therapeutics, we have made four new significant investments in promising AI and computational biology startups, added a new VC partner in Amiti Ventures, and launched a new company creation challenge – all during the war.
Similarly, Ibex Investors, a US-based investment firm specializing in Israeli startups, announced the closure of its fourth Israel-focused fund, showcasing continued confidence in the Israeli tech ecosystem. At the same time, and since the start of the war, Phase V and Mana Bio, two Israeli tech-bio startups, have successfully closed funding rounds. Moreover, the Israel Innovation Authority has announced unprecedented financial support, raising its total annual funding to over $300 million per year and introducing new emergency and long-term funding mechanisms to support the growth of the hi-tech sector.
In fact, according to a recent IVC Research Center report, the Israeli tech sector is still growing, even after a year filled with civil unrest and the ongoing war. Israeli tech companies have managed to raise $15.6 billion in 2023, up 18% from 2022, and the number of exits has increased by 12% to 143, for a total value of $9.8 billion.
Israeli entrepreneurs prove time and again our resilience in the face of hurdles, which is a necessary trait of any start-up leader. The ability to turn challenges into opportunities, coupled with a spirit of determination and innovation, positions the Israeli hi-tech sector as a true global leader in solving some of humanity’s most pressing problems.
This won’t change overnight. Far from it.
From cybersecurity to health tech, Israeli companies will continue to pioneer solutions that transform industries, save lives, and shape the future. We are a people and nation of purpose. We always have and will always thrive when our backs are against the wall. Always bet on Israel.
The writer is CEO of AION Labs, a venture studio for new start-ups utilizing AI for drug discovery and development. Prior to founding AION Labs, he was a senior executive at Teva Pharmaceuticals and served as chief of staff for Israel’s public security minister.