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Israel’s security landscape has increasingly depended on rapid technological adaptation, but until recently, defense-focused startups struggled to attract significant investment. The year 2025 marks a major turning point: companies working with the Ministry of Defense’s Directorate for R&D (MAFAT) have raised over $1 billion through funding rounds, acquisitions, and strategic deals—more than all previous years combined.
The core issue behind this surge is operational demand. However, the past two years of intensive conflict created urgent needs across autonomy, sensing, navigation, and electronic warfare. Traditional defense contractors could not alone meet the pace or diversity of those requirements, nor was it easy for startups to find funding if they weren’t developing a “dual-use” (for civilians and military) technology. This opened space for smaller, highly specialized startups. Since October 2023, more than 130 Israeli startups have been integrated into wartime activity, with roughly half focused on AI and autonomous systems and a quarter on advanced sensors.
This environment pushed investors to reassess defense technology. Global defense budgets grew by 9%, reaching a 30-year high of $2.7 trillion, and investors began viewing defense-tech not as a niche field but as a strategic growth sector. Crunchbase data shows Israeli startups accounted for a sizeable portion of the $7.7 billion invested in defense ventures worldwide in 2025.
A major driver of the local boom is the emergence of new platforms and mission technologies. Quantum-computing startup Classiq raised $110 million, expanding software tools relevant to encryption and next-generation command-and-control systems. Kela, founded in 2024, secured roughly $100 million to build open-architecture C2 environments capable of integrating dozens of smaller technologies—radars, SIGINT tools, interceptors—into unified operational frameworks. Drone manufacturer Heven, backed by a $100 million investment led by IonQ, became Israel’s first defense-tech unicorn, reaching a valuation of over $1 billion.
Foreign investment also played a significant role. U.S.-based Ondas Holdings injected $400 million into Israeli startups and acquired several companies, including anti-drone specialist Sentrycs for $225 million.
These technologies are not abstract innovations—they are already in use. Startups have provided the IDF and security agencies with tools for border protection, drone interception, autonomous navigation, and battlefield analytics.
Looking ahead, the Ministry of Defense plans to allocate 10% of its 2026 R&D budget to startups and establish state-guaranteed investment funds worth NIS 200 million to stabilize growth. Regulatory adjustments will also ease export restrictions for certain classified technologies, opening new global markets.
While 2026 may not match the extraordinary operational demand of the past two years, Israel’s defense-tech ecosystem now sits at a scale—and credibility—unseen before, positioning local innovators as key contributors to next-generation security capabilities worldwide.
