Now is the best time to invest in Israel

Israel’s Defining Moment: October 7th

October 7th still resonates deeply, even 10 months after that tragic day. With over 120 hostages still in captivity and threats from the Northern border, Israel is constantly reminded that survival is a matter of action, combined with hope through every circumstance.

This instinct to expect miracles in every hardship has carried Israel through its short modern history and saturates the history of the people of Israel for over 3,000 years. Israel’s story is one of extraordinary resilience, faith, and sacrifice. As news of the attack spread, thousands of Israelis—young men and women from all across the country—spontaneously got in their cars and drove into the Gaza Envelope to defend their fellow citizens. This spontaneous mobilization prevented a much worse disaster and demonstrated the resilience and bravery inherent in the Israeli spirit.

This reaction wasn’t an anomaly. It was the culmination of history’s richest culture acting at a moment’s notice for the greater good. It is that same force that underlies Israel’s ability to innovate and invent despite hardship, war, and existential threats.

Transforming Adversity into Technological Advancement

Historically, Israel has turned its geopolitical challenges into opportunities for technological innovation. The Yom Kippur War in 1973 underscored the critical need for enhanced intelligence and surveillance capabilities, expediting the advancement of drone and ISR (Intelligence, Surveillance, and Reconnaissance) technologies. Persistent threats have necessitated the development of systems like the Iron Dome missile defense system, exemplifying Israel’s rapid response to immediate security challenges.

The events of October 7th are likely to spur further advancements. Thousands of reservists, impacted by the conflict, are returning with renewed determination to contribute to a safer future. Their experiences will inspire new innovations in security technologies, reinforcing Israel’s position as a leader in defense tech.

What’s Happening in the Israeli Startup Scene?

Despite the backdrop of conflict and instability, the Israeli startup scene has shown remarkable vigor in the early months of 2024. The sector attracted $1.8 billion in private funding across 114 funding rounds in the first quarter alone, with an increase in the average funding round size, signaling a market that values innovative solutions with robust growth potential. This is a strong indicator that the startup ecosystem in Israel is not just resilient but also capable of attracting substantial investment interest amid challenging times. Israel’s strongest patrons, who have historically seen incredible returns on their investments in world-changing technology, continue to invest heavily, as opportunities are now available at a much lower price.

The Shift from Valuation to Viability

Israel has previously prided itself on being a nation of unicorn companies, excelling in quick product-market fit and explosive growth. However, the shift from chasing billion-dollar valuations to prioritizing profitability and long-term viability marks a significant pivot in the Israeli startup narrative. This transition reflects a broader trend within the global economy, where resilience and sustainable growth are becoming paramount.

The need for significant income triumphs valuation during times of instability. Israel, now at war when the world seems to be on the brink of war, puts itself at the forefront of preparation for a paradigm shift that will separate winners from losers. Israel is no longer a nation of unicorns but a nation of camels, resilient beings known for their incomparable resilience to harsh climates. This recalibration towards financial sustainability signifies a maturation within the Israeli tech ecosystem. It emphasizes that true success lies in the ability to build businesses capable of withstanding and adapting to changing economic landscapes. Perhaps this is the shift from being the ‘startup nation’ to becoming the ‘scale-up nation.’

Investor Realignment: A New Focus on Profitability

The investor landscape keeping an eye on Israel is also pivoting in this paradigm shift, placing more emphasis on companies looking to scale after showing product-market fit through profitability. Investors are now scrutinizing business models, revenue streams, and paths to profitability more rigorously, focusing on key factors like scalability, resilience, market potential, and core team. This evolution in investment strategy is driven by both changing global economic conditions and lessons learned from high-profile failures in the tech industry. Investors are seeking to mitigate risks by favoring startups that demonstrate clear value propositions, market fit, and the capacity to generate profit.

Israel is Poised for a 50-Year Growth Season

Despite the current challenges, Israel is poised for 50 years of remarkable growth and success. This vision is grounded in several key factors that promise to drive Israel’s economic and technological advancements in the coming decades. The collective efforts of Israeli companies, investors, and the government are not only ensuring that Israel navigates the current challenges successfully but are also laying the groundwork for a future of renewed economic vitality and global leadership in innovation.

Investors have the unique opportunity to be part of Israel’s journey through this transformative era. By investing in Israel, international stakeholders can anticipate considerable returns and contribute to a nation that stands as a beacon of innovation and resilience in the Middle East.