After two years of war, political uncertainty, a global venture reset and a brutal recalibration in software valuations, Israeli high-tech did something it has done many times before: it kept going.
According to the Israel Innovation Authority’s 2026 State of High-Tech report, 2025 was, on the surface, a landmark year. Israeli high-tech output grew by 8.2% in real terms. The sector contributed roughly half of Israel’s overall economic growth. High-tech exports reached approximately $85 billion, representing 58% of all Israeli exports. Venture funding rose by 30% to approximately $14.6 billion. Exits reached a record $84 billion. Israel ranked as the fourth-largest startup fundraising hub in the world, behind only San Francisco, New York and Boston, and ahead of Los Angeles, London, Paris and Singapore.
In any normal country, these numbers would be celebrated as an economic miracle. In Israel, they are almost treated as table stakes.
But the report is more interesting than a victory lap. It tells a more nuanced story about an ecosystem that is simultaneously resilient and exposed, globally relevant and increasingly globalised, productive and less labour-intensive, capital-rich at the top and funding-constrained at the bottom.
The Israeli tech ecosystem is not collapsing. Far from it. But it is changing shape.
High-tech is no longer a sector. It is the economy
The most important macro point in the report is not fundraising or exits. It is the weight of high-tech in the Israeli economy.
In 2025, Israeli high-tech GDP reached NIS 352 billion, representing 18.3% of Israel’s GDP. The sector accounted for roughly 50% of the country’s total economic growth. High-tech output per employee reached approximately NIS 827,000 annually, the highest of any major sector in the Israeli economy and significantly above finance, commerce and construction.
That productivity advantage is the core of the Startup Nation story. High-tech has become Israel’s growth engine not only because it creates valuable companies, but because it creates unusually high-value work.
The problem is that this also makes Israel highly dependent on one sector. High-tech now accounts for 58% of total exports, and exports account for nearly 79% of high-tech output. This is a strength, but also a vulnerability. When the shekel strengthens against the dollar, Israeli startups feel it immediately: revenues are often dollar-denominated, while much of the cost base, especially salaries, is in shekels.
The report estimates that the change in the USD/NIS exchange rate from an average of 3.7 in 2024 to 3.45 in 2025 translated into a NIS 21 billion reduction in high-tech output. For startups already managing burn carefully, that kind of currency movement is not an accounting detail. It shortens runway, pressures hiring, and makes Israeli employment more expensive relative to alternatives abroad.
Fundraising recovered, but the money is concentrating
The headline funding number is strong: Israeli technology companies raised approximately $14.6 billion in 2025, a 30% increase compared to 2024. Early 2026 data also points to continued momentum, with approximately $3.36 billion raised in the first quarter.
But the composition of that capital matters.
The report highlights that the number of funding rounds continued to decline. The recovery was driven largely by large rounds and growth-stage companies, while smaller rounds, especially under $10 million, fell to their lowest level in a decade. In other words, the market is not becoming easier for everyone. It is becoming easier for a smaller number of companies that can command investor attention.
This is the K-shaped venture market playing out in Israel. The best companies can still raise very large rounds. Everyone else is fighting for oxygen.
This matters especially for early-stage founders. Israel has always relied on a healthy pre-seed and seed layer: repeat founders, technical talent leaving elite units or scaleups, and local angels willing to take early risk. If capital concentrates too heavily in cyber, enterprise software and later-stage AI winners, the long tail of experimentation can suffer.
The report notes that cyber, enterprise software and fintech account for more than 60% of capital raised. It also points to a reduction in capital available for companies outside cyber and enterprise software. That is a warning sign. Great ecosystems need power-law outcomes, but they also need a wide base of new company formation.
The good news is that new startup creation rose in 2025. Approximately 775 new technology companies were founded in Israel, reversing a decade-long decline. That is still far below the peak of the mid-2010s, but it suggests that entrepreneurship remains alive despite the war, the funding reset and the rise of AI.
2025 was the year of exits, but not all exits are equal
The exit numbers are eye-catching. The report points to approximately $84 billion in total exit value when including major transactions such as Wiz, CyberArk and Armis. M&A activity also strengthened, with Israeli companies acquiring 81 foreign companies in 2025. Nearly half of Israeli high-tech companies sold in 2025 were acquired by other Israeli technology companies.
This is an important sign of ecosystem maturity. For years, Israel was criticized for selling too early. The classic critique was that Israel creates excellent technologies, but not enough large enduring companies. The 2026 report suggests that the picture is changing. Israeli companies are not only being acquired; they are becoming acquirers.
This matters for founders and investors. A local market with more Israeli acquirers creates more liquidity paths, more talent recycling, more founder second acts, and potentially more category leaders headquartered in or connected to Israel.
At the same time, exit value can be lumpy. A single mega-acquisition can distort the annual picture. The deeper question is whether Israel can consistently produce more large independent companies, not just more valuable M&A outcomes.
The Innovation Authority is explicit on this point. Israel’s challenge is not only to create innovation, but to ensure that innovation continues to create value, jobs and growth in Israel.
The growth engine is shifting from software to hardware and deep tech
One of the most interesting findings in the report is that most of the growth in high-tech output in 2025 came from hardware manufacturing: computers, electronic equipment and optical devices. This segment added approximately NIS 16 billion in output in a single year, after several years in which annual growth was no more than NIS 1.5 billion.
This is a meaningful shift.
For the past decade, Israeli high-tech growth was dominated by software: SaaS, cyber, fintech, cloud infrastructure, dev tools and enterprise platforms. In 2025, the report suggests that hardware, AI infrastructure, chips, energy and deep tech are becoming more central to the growth story.
That does not mean software is dead. High-tech services still account for roughly 69% of Israeli high-tech output. But the direction of travel is important. The AI era is increasing demand for compute, semiconductors, data infrastructure, advanced hardware and applied deep tech. Israel’s historic strengths in semiconductors, cyber, defense, communications, computer vision and multidisciplinary engineering suddenly look more strategically important.
This is also aligned with where global technology competition is moving. AI is not only a software story. It is also a compute story, a chip story, an energy story, a robotics story, a defense story and a supply chain story.
For Israel, that creates an opening. The country cannot compete with the U.S. or China on scale. But it can compete on specialization, speed, technical depth and the ability to turn hard problems into venture-backed companies.
AI is boosting productivity, but eroding old moats
The report treats AI as both an opportunity and a disruption. Roughly a third of Israeli high-tech investment in 2025 went into Core AI companies. The Innovation Authority also highlights growing activity in AI infrastructure, vertical AI, defense tech, space and quantum.
But the more subtle point is what AI is doing to the structure of companies.
The number of R&D employees in Israeli high-tech declined for the first time in over a decade, with approximately 3,500 fewer R&D employees in Israel. At the same time, product roles increased by approximately 15,000, rising to 24% of high-tech employment. R&D still represents the largest share of the sector, at around 49%, but the direction is notable.
This may be one of the earliest macro-level signs of AI changing company formation.
If software development becomes faster, cheaper and more automated, startups may need fewer developers to reach the same level of output. Product, design, distribution, data access, workflow ownership and customer intimacy may become more important. In other words, the bottleneck shifts from “can we build it?” to “should this exist, who uses it, and how defensible is it?”
That is why AI is simultaneously lowering barriers to entry and raising the bar for venture funding. More people can build. Fewer things are obviously fundable.
For founders, the implication is clear: technical execution alone is no longer enough. The moat needs to come from proprietary data, distribution, workflow ownership, regulatory complexity, customer trust, deep domain expertise, network effects, hardware integration or a genuinely superior product experience.
For investors, the implication is equally uncomfortable: the old software playbook needs updating. AI makes it easier to create software, but not necessarily easier to create enduring companies.
The biggest warning sign: activity is moving abroad
The most important risk in the report is not the decline in R&D roles or the concentration of capital. It is the gradual movement of activity outside Israel.
By March 2026, only 62% of employees at private Israeli high-tech companies were based in Israel, compared to 69% in 2019. The decline is not limited to sales and support, where international expansion is expected. The report also points to growth in overseas R&D and senior management roles, particularly in the United States and Eastern Europe.
This is the heart of the strategic question for Israeli tech.
Some of this is natural maturation. Israeli startups that become global companies need sales, marketing, customer success and leadership close to their customers. A company selling to U.S. enterprises will often need a U.S.-based executive team. That is not a failure. It is part of scaling.
But there is a difference between globalization and hollowing out. If the center of gravity shifts too far abroad — management, R&D, decision-making, capital, customer relationships — Israel risks becoming the place where companies are born, but not where they grow.
The report also notes rising relocation trends among high-tech employees. In the context of war, political uncertainty, cost pressures and exchange-rate dynamics, this is not something policymakers can ignore. Talent is mobile. Capital is mobile. Founders are mobile. Ecosystems compete not only on talent quality, but on stability, cost, taxation, infrastructure, access to markets and quality of life.
Israel’s advantage has always been its density: talent, universities, military technology units, investors, repeat founders, multinational R&D centers and a culture of urgency compressed into a small geography. If too much of that density moves abroad, the network effects weaken.
Foreign capital remains both a strength and a dependency
The report also reminds us how globally financed Israeli innovation is. Around 70% of venture capital investment in Israel in 2025 was classified as foreign investment. Foreign sources also account for a much higher share of business-sector R&D funding in Israel than the OECD average.
This is a strength. Israel’s ability to attract foreign capital is one of the reasons it punches above its weight. But it also creates cyclicality. When global investors pull back, shift attention, or prioritize domestic opportunities, Israeli startups feel it quickly.
Interestingly, most active investors in Israel are still local. The report says that 61% of active investors in 2025 were Israeli, including 481 Israeli venture capital funds and 269 Israeli angels. But most of the dollars come from abroad.
That creates an important role for local seed funds, angels, accelerators, venture studios and government-backed programs. They are often the first believers, especially in deep tech and risky early-stage categories where private capital may be insufficient.
The Innovation Authority’s Startup Fund and Yozma Fund are part of this policy response. The report’s message is clear: in an era of AI, deep tech, semiconductors, quantum and geopolitical competition, government support is not a nice-to-have. It is strategic infrastructure.
What this means for founders
For founders, the 2026 report has five clear messages.
First, Israel is still a great place to start a technology company. The talent base, investor density, technical depth and global connectivity remain exceptional.
Second, the funding market is more selective. A 30% increase in capital raised does not mean fundraising is easy. Much of the money is going to fewer companies, larger rounds and clearer category winners.
Third, AI changes the company-building equation. Building software is cheaper, but defensibility is harder. Founders need to be much sharper on distribution, data, workflow ownership and customer urgency.
Fourth, deep tech and AI infrastructure are moving from niche to core. Semiconductors, defense tech, robotics, energy, compute, cyber and physical AI are increasingly part of Israel’s next growth story.
Fifth, building globally is necessary, but founders should be intentional about what remains in Israel. The question is not whether to open a U.S. office. Many companies should. The question is where the company’s real center of gravity sits.
What this means for investors
For investors, the report reinforces the need to rethink allocation.
The old Israeli venture model was heavily exposed to software, cyber and enterprise SaaS. Those categories remain important, but AI is changing the shape of returns. The next wave may require more patience, more technical underwriting and more comfort with deep tech risk.
Seed investing also becomes more important, not less. If early-stage capital thins out while company creation rebounds, there is an opportunity for investors willing to back strong teams before the market has consensus.
At the same time, investors need to be more disciplined. AI will produce a flood of startups that look impressive in demo form but lack defensibility. The bar has moved. Speed to build is no longer the same as company quality.
The best opportunities may sit at the intersection of Israel’s historical strengths and the new AI infrastructure stack: cyber for AI systems, chips and compute optimization, defense and dual-use, physical AI, robotics, enterprise automation, synthetic data, developer infrastructure, and vertical AI in markets where Israeli teams have unfair domain access.
Israeli High Tech is maturing and transitioning
The 2026 State of High-Tech report is not a story of crisis. It is a story of transition.
Israeli high-tech is bigger, more productive and more globally important than ever. It delivered record exports, record exits, strong funding growth and renewed company formation despite two years of war and a difficult global capital market.
But the report also shows an ecosystem becoming more concentrated, more dependent on foreign capital, more exposed to currency movements, and more at risk of seeing activity migrate abroad.
The next chapter of Startup Nation will not be defined by whether Israelis can keep creating breakthrough startups. They can. The real question is whether Israel can remain the place where those startups scale, employ, lead and compound value over time.
That will require founders who build with global ambition but local depth. Investors who fund the next generation before consensus forms. Policymakers who understand that innovation is national infrastructure. And an ecosystem that remembers that its greatest advantage was never scale, but density, urgency and the ability to turn constraints into companies.
Israeli high-tech has proven its resilience again. Now it needs to prove that resilience can translate into long-term, locally anchored leadership in the AI and deep tech era.
He is a former General Partner at Google Ventures (GV) in Europe, former head of Google for Entrepreneurs in Europe, and founding head of Campus London, Google's first startup hub. Eze writes on Israeli tech, venture capital, artificial intelligence, and founder strategy.
He is also the founder of Techbikers, a nonprofit that brings together the startup ecosystem on cycling challenges in support of Room to Read.
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