Israel’s Tech Paradox: Global Innovation, Local Challenges
Tel Aviv
Renowned globally as a "startup nation," Israel continues to lead the world in innovation, with a thriving technology ecosystem and groundbreaking advancements in AI, cybersecurity, and med-tech. Yet, beneath its global success lies a pressing paradox: the disparity between its global tech achievements and domestic socio-economic challenges.
Israel’s tech boom, centered in Tel Aviv, has driven economic growth and attracted billions in foreign investments. However, this prosperity has not reached all corners of society. Marginalized groups such as ultra-Orthodox Jews and Arab-Israelis remain underrepresented in the tech workforce. Meanwhile, the high cost of living, exacerbated by tech-driven gentrification, has made cities like Tel Aviv unaffordable for many citizens.
Israel’s reliance on military-backed innovation, while a source of strength, has also raised ethical concerns globally. Critics argue that the export of surveillance technology to controversial regimes could tarnish Israel's reputation.
To address these issues, the government has launched initiatives aimed at integrating minorities into the tech sector and fostering development in underserved regions like the Negev and Galilee. Programs to enhance STEM education and expand regional tech hubs are also underway.
As Israel embraces new opportunities through its partnerships under the Abraham Accords, the challenge remains: can the startup nation bridge its domestic divides while maintaining its global leadership in technology?
According to times of isreal, this year Israel has been facing one of the longest and most intense wars in its history, levels of geopolitical uncertainty have been off the charts, and yet the local tech market for “exits” — mergers and acquisitions or initial public offerings of shares – is on track for one of the best years over the past decade.
The value of Israeli tech exits, including M&As and IPOs, this year jumped 78 percent to $13.4 billion, up from $7.5 billion in 2023, according to the 2024 exit report by consultants PwC Israel released on Wednesday. Despite the large increase in the value of transactions, there was a modest increase in the number of deals executed this year – 53 compared to 45 transactions completed in 2023.
From the outset, the data looks encouraging, but a closer look shows that almost half of the transactions were middle-of-the-road deals, in the $100 to 500 million range, involving more established startups and companies mostly developing cybersecurity and artificial intelligence technologies. Overall, average deal size surged by 51%, to $252 million compared to $167 million in the previous year.
“Against the backdrop of the war and amid internal and global challenges, the Israeli high-tech industry demonstrates recovery signs in 2024, showing significant upward trends in both average deal size and total transaction values,” said Yaron Weizenbluth, partner at PwC Israel. “However, it’s important to note that alongside this growth, the market remains characterized by unprecedented levels of uncertainty this year.”
“We must address the evident paradox in the local tech sector stemming from international macroeconomic conditions that impact the local economy, leading to a to real disillusionment for both investors and entrepreneurs,” said Weizenbluth.
Over the past year, local startups and tech companies continued to run their businesses despite fundraising challenges as they sheltered from rockets, and many of their executives and employees were called up to reserve duty, following the outbreak of war on October 7, 2023, when thousands of terrorists burst into southern Israel from the Gaza Strip, killing some 1,200 people and abducting 251.
“Fighting simultaneously on multiple fronts, with many people on long active reserve duties, civilian population under threat, and global public opinion that is not always as sympathetic were just part of a whole range of circumstances that the local tech industry had to face,” said Weizenbluth.
Weizenbluth called on the government to formulate a long-term national strategy that focuses on social cohesion, equal civic participation, and investment in human resources to secure investor confidence and maintain the tech sector’s edge.
Excluding IPOs, Israeli tech companies and startups are on track for a record M&A year in 2024 as 47 deals added up to about $12.6 billion, according to the data presented in the report. Two mega deals over $1 billion led the flow of M&A activity in 2024 versus only one in 2023.
“While cybersecurity continued its market leadership, we observed increased diversification across sectors compared to the previous year, spanning AI, enterprise software, life sciences, and internet technologies,” said Weizenbluth. “Notably, ‘blue-and-white’ transactions, in which both acquiring and acquired companies are Israel-affiliated, accounted for 28% of all deals, underscoring the industry’s resilience and the robust entrepreneurial spirit within the local market.”
Earlier this year, Nvidia spent almost $1 billion to buy two Israeli startups. The US chipmaker bought Israeli AI startup Deci for about $300 million and local startup Run:ai, for about $700 million. The acquisition of Run:ai is Nvidia’s biggest acquisition in Israel since it bought Mellanox Technologies Ltd. in 2020 for $6.9 billion. San Francisco-based software giant Saleforce also scored two big deals in Israel with the acquisition of Own, an Israeli data backup startup for $1.9 billion and local data management startup Zoomin for $450 million.
Other notable mega deals that closed this year are Blackstone acquiring Priority Software for $800 million, and Johnson & Johnson buying V-Wave.
Despite the war, US buyers continued to lead deal flow in the Israeli tech ecosystem with 31 deals worth $8.9 billion, accounting for about 58% of total transactions compared to 27 deals representing 60% of total transactions in 2023. Israeli acquirers were behind 15 deals worth $3.2 billion and European acquirers were on a buying spree for a total of $951 million.#
