Israeli defence startups draw investment from major American firms

Israeli army reservist Zach Bergerson felt he had to take action when he saw fellow soldiers having to rely on their eyes and ears to detect swarms of enemy drones overhead.

So the high-tech professional, 36, developed a wearable device that uses mobile phone technology to warn troops of aerial threats. Like other reservists, Bergerson has leveraged his civilian expertise and military experience to bolster Israel's defence industry.

Known as SkyHoop, his startup has since emerged from stealth mode - a period when startups typically work in secrecy - to be piloted in Ukraine with discussions underway for a trial by the US Defense Department.

While US President Donald Trump brokers a Gaza ceasefire, Israeli startups like Bergerson's are drawing investment from US and Israeli venture capital firms and looking to build on a growing European market for Israeli defence exports.

More than a third of all defence tech startups registered with the country's Startup Nation Central, an organization that tracks Israeli innovation, was created since a deadly Hamas attack on Israel on October 7, 2023, launched the war in Gaza.

In June, while Israel attacked Iranian nuclear and ballistic missile targets, their 12-day air war highlighted the efficacy of Israel's aerial defences. Israel successfully intercepted 86% of Iran's ballistic missile launches, the Defence Ministry said.

The changing nature of war has led to shifts in defence procurement worldwide. Western armies demand new battle-tested technology, refined by soldiers in combat. Some 20% of Israeli reservists work in the robust high-tech sector.

Israeli defence startups have drawn investment from major American venture capital firms that previously avoided the sector as it was considered riskier and mired in regulation. Israeli VC firms have emerged as well to invest in defence.

Lital Leshem, an Israeli reservist, in December co-founded Protego Ventures, a fund that has studied some 160 defence companies and raised around $100 million. She expects the fund will invest in around four companies by year's end.

“Reservists are coming out of the battlefield and are putting together new companies to solve real problems that they have experienced in real-time on the battlefield,” Leshem told Reuters.

These companies will face major challenges scaling up to the global market and overcoming regulatory hurdles, Leshem said, but she predicts that, like Israel's cyber industry, it is a field in which Israeli entrepreneurs can thrive.

These startups formerly viewed the US as the "holy grail" for their target market, Leshem said, but that is also changing.

Israeli startups are hoping to benefit from Trump's demand that European countries take over from the US more of the burden of defending their continent.

Under a new NATO defence spending plan, countries will spend 5% of GDP - up from 2% - on defence. The figure includes 3.5% of GDP on "core defence" such as weapons and troops and 1.5% on security-related investments.

Such an increase - to be phased in over 10 years - will mean hundreds of billions of dollars more spending on defence.

Israel’s defence exports hit a record $14.8 billion in 2024, according to Defence Ministry figures released last month, while exports to Europe comprised more than 50% of these sales, up from 35% in 2023.

Despite calls from some countries to boycott Israeli weapons, “when one side is purchasing, in the end, they want to buy the best product possible,” said Reserve Brigadier General Yair Kulas, head of the Defence Ministry International Defence Cooperation Directorate.

Largely as a result of the Russia-Ukraine war, Kulas said, European states are upgrading their militaries, sending older equipment to Ukraine and replacing it with new products, many of them from Israel. Kulas said the story of Israeli weapons exports is also part of a larger global trend.

The political backlash is worrisome, Kulas said, because on the one hand Israel’s innovation is groundbreaking and world-class but there has been a “delegitimization of Israel".

More than 57,000 Palestinians have been killed, most of them civilians, local health officials have said, in the 21 months since Israel launched its assault on Gaza, displacing the population and leaving the territory in ruins.

“I don’t know how it will impact the results in 2025,” Kulas told Reuters. He said it is “certainly a huge challenge.”

Avi Hasson from Startup Nation Central said the surge of new defence startups created by reservists is reminiscent of a technological revolution 20 years ago that would later evolve into smartphones.

Startups may prompt larger Israeli defence companies such as ElbitESLT.TA, Rafael and Israel Aerospace Industries to either try to acquire more Israeli startups and help bring them up to scale or develop their technology at a faster pace.

"We are now in a different world," Hasson told Reuters.