Israeli Tech Sector Resilient Yet Confronting Funding Uncertainty Amid War with Hamas, Says Reuters

By Steven Scheer

JERUSALEM – Israel’s technology sector has demonstrated resilience despite the ongoing year-long conflict with Hamas. However, dependence on large corporations and foreign investment brings about funding uncertainties that could negatively impact the broader economy, according to a recent government report.

Since the onset of hostilities on October 7, Israeli tech companies have secured approximately $9 billion in funding, ranking third globally behind Silicon Valley and New York, as reported by the state-funded Israel Innovation Authority (IIA).

"The level of investment has remained relatively stable compared to the period before the conflict," stated Dror Bin, CEO of the IIA. "Even with the increased risks associated with investing in Israel, investors still recognize the potential in these startups and continue to support them."

The high-tech industry is a critical driver of Israel’s economy, accounting for 16% of employment, more than half of the country’s exports, a third of income tax revenue, and 20% of overall economic output.

Bin expressed worries regarding stagnant employment within the sector, which could hinder tax revenues at a time when funds are crucial for wartime expenditures. Most investments appear focused on well-established startups and cybersecurity firms, leaving many other promising companies struggling for funding. "We are facing a potential problem," Bin noted, highlighting the ongoing challenges for numerous viable businesses seeking investment.

To address these issues, the IIA has implemented various programs aimed at assisting smaller startups to remain operational. Bin also anticipates a surge in new defense technology startups following the conclusion of the conflict. "The fundamentals of the tech sector remain intact," he remarked. "Once this war ends, we can expect to see a rebound."

This report from the IIA aligns with a previous finding from Startup Nation Central (SNC), a nonprofit organization, which noted that while larger tech firms continue to prosper, prolonged conflict raises concerns about the sustainability of the sector, particularly in light of the current Israeli government’s economic policies, which some view as detrimental.

Recent media reports suggested that the 2025 budget may reduce tax incentives for foreign investors in the technology sector.