Israel’s Startup Nation Central, an Israel-based NGO, released its annual Israeli Tech Ecosystem report for 2023 this week, highlighting the growth in the country’s tech sector and with outlooks for 2024.

According to the report, the country has 7272 tech companies that have received funding from a total of 353 investors. Total funding, spread across categories, topped $23.5 billion, with $7.9 billion alone coming in private rounds. The amounts are a drop from previous years, with $17.7 billion in private money coming in 2022 and a remarkable $29.4 billion in 2021. This falls in line with global tech funding that saw a spike during the Covid-19 pandemic, and which subsequently dropped in 2022 and 2023. For example, the US saw a 51% drop in funding from 2021-2023, Europe 52%, and Asia 60%.

Despite the war currently raging, funding for the fourth quarter of 2023 is estimated at $2.1 billion – the lowest of the fiscal year but an indictor at that there is still interest in the sector. Most of this money, as has been the norm for most of Israel’s tech history, comes from foreign investors. The breakdown for 2023 was 43.8% foreign only, 39.5% foreign and Israeli, and 16.7% only Israeli investment. This is very much in line with the previous six years.

Israel’s tech sector is notable for achievements and innovations in cybersecurity – in many thanks to its necessity due to constant security threats. As such, the sector saw the largest intake in funding for the year with $1.9 billion. The sector with the most absolute investments – 150 – was the health tech field. The country has a high rate of research output and favorable private/public partnerships between the major hospital systems, allowing for new technology to be tested and scaled more easily than other countries.

Benjamin Weiss, a partner at Softbank, told the report that he is bullish on the future of the industry, saying “Israel continues to stand at the forefront of the development of next generation technologies in areas including Cyber, Artificial Intelligence and Semiconductors.”

Due to the war, Yonatan Mandelbaum, a partner at TLV Partners, said “I believe we will begin to see a new cohort of even more ambitious companies coming out of Israel in industries that have been historically overlooked such as: defense, manufacturing and critical infrastructure.”

2023 also saw 52 Israeli companies being bought out, totaling $3.5 billion. Twelve of these sales happened during the war, even higher than the second sector of 2023. Notable sales were Imperva, a cybersecurity company, being bought by French company Thales for $3.6 billion Talon Cyber Security being bought by Israeli founded Palo Alto Networks for $625 million, Axis Security being bought by Hewlett Packard for $500 million, and Dig Security also being purchased by Palo Alto for $350 million.

As the war rages in the south and the potential for an expansion to the north with Lebanon, optimism still reigns supreme in the sector. According to Startup Nation Central, 89% of respondents said they were optimistic about the future of the sector in Israel, and 79% said they see the industry as resilient. They also surveyed multinational companies, 88% of which said they would either maintain or expand their operations in Israel.

Lotan Levkowitz, the general partner at Grove Ventures, said “In 2024 entrepreneurship is more than a job – it’s about resilient founders facing challenges head-on. Despite a tough funding scene, only the strongest will prevail, shaping a tech landscape defined by grit and excellence.”

The CEO of Startup Nation Central, Avi Hasson, added “Heading into 2024, the Israeli tech ecosystem faces significant challenges, but I am hopeful that the ecosystem’s bedrock of innovation, global partnership, and proven resilience will steer it through uncertainties and toward a continued growth trajectory;  Israel remains an innovation hub and an ecosystem with significant investment opportunities.”

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