The outbreak of war between Israel and Hamas last October prompted an examination of its potential impact on the tech ecosystems in Israel and Palestine. Fast forward nine months, and the prevailing sentiment in Israel, based on discussions with founders and investors, is that the conflict has actually made the startup and VC ecosystem more resilient, particularly in the cyber and AI sectors.
The technology sector is a crucial driver of Israel’s economy, with over 14% of the workforce employed in the sector as of 2022, contributing more than 18% of the GDP, and accounting for half of the country’s exports, according to the 2023 annual report from the Israel Innovation Authority.
Despite challenges, particularly with a decrease in venture capital investments and disruptions due to the war, the resilience of the cybersecurity and AI sectors is evident. The acquisition of 11 companies, mainly in cybersecurity and AI, for over $2 billion since the beginning of the year reflects the sector’s strength and attractiveness to investors.
While cyberattacks have increased since the conflict started, Israel’s cybersecurity industry, bolstered by talent, military graduates, and entrepreneurial culture, has been instrumental in defending against these threats. Experts note that the cybersecurity sector continues to perform exceptionally well despite the ongoing challenges.
The war did not deter investor interest in cybersecurity and AI startups, with both sectors continuing to secure funding. Efforts from local investors and organizations like the Israel Innovation Authority and OurCrowd have been crucial in supporting startups impacted by the conflict and ensuring their sustainability.
Cybersecurity and AI startups still popular with investors
Despite some challenges faced by investors and startups, the cybersecurity and AI sectors have shown resilience, with private funding in Israel growing in the first half of 2024. Notable companies in these sectors securing significant funding indicate the continued interest from investors.
The integration of AI in various industries, particularly in cybersecurity, has become more prevalent, with startups leveraging AI capabilities to enhance their products and provide better defense against cyber threats. The global tech industry is still in the early stages of AI for cybersecurity, highlighting the importance of caution in adopting these technologies.
How local investors and other stakeholders stepped in
Efforts from organizations like the Israel Innovation Authority and OurCrowd have been vital in supporting startups affected by the conflict, with initiatives like the Fast Track program and the Israel Resilience Fund providing much-needed assistance to early-stage startups.
The use of AI in cybersecurity has become increasingly important, with startups incorporating AI capabilities to enhance security measures and improve threat detection. While AI offers significant benefits in cybersecurity, experts advise caution due to the potential for misuse by malicious actors.
