Post-war startup boom on the horizon says top tech executive

Get ready for a “startup baby boom” once the Israel-Hamas war is over, says Avi Hasson, the chief executive of Startup Nation Central, a non-profit that promotes the Israeli innovation ecosystem around the world.

Hasson, who also served as founding chairman of the Israel Innovation Authority and is Israel’s former Chief Scientist, believes there are a bunch of Israeli innovators waiting in the wings with exciting new ideas.

“Many new companies will be formed,” Hasson tells Jewish News. “There will be a wave of innovation around areas like drones and sensors, and a lot of new technology in healthcare, rehabilitation and mental health. Defense is another emerging startup sector.

This week, Startup Nation Central released its Q1 report on the Israeli tech ecosystem which highlighted cyber security as a particularly dominant force. Cyber featured four of the six mega-rounds with $846m in private funding and accounted for nearly 50 per cent of the total ecosystem funding and half the top six exits, as it continues to “show resilience” notes Hasson. “It’s one of the few sectors that remains attractive and relevant, even as we have moved from one innovation cycle to the other.” The other being the AI.

“This [AI] is going to drive pretty much everything we are going to see over the next year and Israel has unique capabilities there.

Hasson had been concerned that Israeli talent might leave the country amid the “spirit of despair” brought about by judicial reforms but said that “since the war we are seeing a true spirit of determination and resilience among Israelis: ‘We are staying and we are rebuilding’.” This the most important fuel for an entrepreneur to start a new company.”

That said, Hasson, who has over 30 years’ experience working in the Israeli business world including executive roles in the business, technology, and not-for-profit sectors, acknowledges that Israel is facing a tough time when it comes to its public image.

“I remember 20 years ago having to convince the global investor community ‘why Israel’, and now we are having to explain again, but for different reasons.”

Hasson will be reassured by the findings in his organisation’s report which, against an extremely challenging backdrop, saw Israel’s investment landscape achieve modest growth in the first few months of the year compared to Q4 2023 and marked the most active M&A quarter since the start of 2022 among its positive findings.

Meanwhile, another recent Startup Nation Central report showed that the Israeli tech ecosystem is continuing to attract investors and venture capital funds activity amid the war. Based on the period since 7 October, the report cites a total of 220 private investment rounds that have been announced with an estimated $3.1bn raised – the average investment amount was $19m and the most notable was in Next Insurance, which saw two foreign VCs invest $265m. The sum of M&As since 7 October is $3.7bn. Over 20 new funds have been established raising a total of $1.7bn.

But how much longer will Israel’s tech sector be able to withstand the war?

“It has been remarkable to see the resilience of Israelis since the war, continuing to deliver, and there are multiple factors to consider; 90 percent of Israeli hi-tech is in software, so there are no logistical issues of supply chains and while startups are suffering, they only employ about 10 per cent of the Israeli tech workforce – a vast majority are employed in the larger Israeli companies, which are less dependent on funding.”

Hasson remains cautiously optimistic about the future as “now, more than ever, in the face of conflict and uncertainty, an unyielding spirit and relentless energy are driving creativity and inventiveness. This is what we at Startup Nation Central call ‘Impatient Innovation’: a bold and determined approach to innovation harnessed to tackle the world’s most complex challenges.

“Unafraid of failure, Israel’s problem solvers don’t wait for a green light to spring into action.” And while Israel – an early innovator – faces increasing competition from other countries that have been stepping up their innovation efforts in recent years, Hasson says “this impatient innovation is still unique to Israel.”

But Hasson is not “ignoring or underplaying” the potential risks that prolonging the situation [the war] presents. A lot depends on what happens in the war; uncertainty is not good for business, and a lot depends on what the government does to create an environment that is attractive to global investors and multinationals, the right regulations and legislation…”

Israel will also need to ensure it supports the younger and more vulnerable companies struggling with bridge funding during the war. “If we don’t, we will risk losing them.”

He continues: “The country has shrunk. We have to rebuild the north and the south and bring back the economic activity and to me, if we don’t do this, we will lose the war. Even if we win the military battle, we need to win the economic and social battle and build back better to make sure they flourish. If we don’t do this, we have lost the war.”

startupnationcentral.org