Israel Defies Expectations With Surge in Tech Funding Despite War

As the war against Hamas dragged into 2024, there were worries here that investment would dry up in Israel’s globally important technology sector, as much of the world became angry against the casualties in Gaza and recoiled at the unstable security situation.

In fact, a new survey found investment into Israeli technology startups grew 28% last year to $10.6 billion. The influx buoyed Israel’s economy and helped it maintain a war footing on several battlefronts.

The increase marks a turnaround for Israeli startups, which had experienced a decline in investments in 2023 to $8.3 billion, a drop blamed in part on an effort to overhaul the country’s judicial system and the initial shock of the Hamas-led Oct. 7, 2023 attack.

Tech investment in Israel remains depressed from years past. It is still just a third of the almost $30 billion in private investments raised in 2021, a peak after which Israel followed the U.S. into a funding market downturn.

Any increase in Israeli technology investment defied expectations though. The sector is responsible for 20% of Israel’s gross domestic product and about 10% of employment. It contributed directly to 2.2% of GDP growth in the first three quarters of the year, according to Startup Nation Central—without which Israel would have been on a negative growth trend, it said.

“If you asked me a year before if I expected those numbers, I wouldn’t have,” said Avi Hasson, head of Startup Nation Central, the Tel Aviv-based nonprofit that tracks tech investments and released the investment survey.

Israel’s tech sector is among the world’s largest technology hubs, especially for startups. It has remained one of the most stable parts of the Israeli economy during the 15-month long war, which has taxed the economy and slashed expectations for growth to a mere 0.5% in 2024.

Industry investors and analysts say the war stifled what could have been even stronger growth. The survey didn’t break out how much of 2024’s investment came from foreign sources and local funders.

“We have an extremely innovative and dynamic high tech sector which is still holding on,” said Karnit Flug, a former governor of the Bank of Israel and now a senior fellow at the Jerusalem-based Israel Democracy Institute, a think tank. “It has recovered somewhat since the start of the war, but not as much as one would hope.”

At the war’s outset, tens of thousands of Israel’s nearly 400,000 tech employees were called into reserve service and companies scrambled to realign operations as rockets from Gaza and Lebanon pounded the country. Even as operations normalized, foreign airlines overwhelmingly cut service to Israel, spooking investors and making it harder for Israelis to reach their customers abroad.

An explosion in negative global sentiment toward Israel introduced a new form of risk in doing business with Israeli companies. Global ratings firms lowered Israel’s credit rating over uncertainty caused by the war.

Israel’s government flooded money into the economy to stabilize it shortly after war broke out in October 2023. That expansionary fiscal policy, economists say, stemmed what was an initial economic contraction in the war’s first quarter and helped Israel regain its footing, but is now resulting in expected tax increases to foot the bill.

The 2024 boost was led by investments into Israeli cybersecurity companies, which captured about 40% of all private capital raised, despite representing only 7% of Israeli tech companies. Many of Israel’s tech workers have served in advanced military-technology units, where they can gain experience building products. Israeli tech products are sometimes tested on the battlefield. These factors have led to its cybersecurity companies being dominant in the global market, industry experts said.

The number of Israeli defense-tech companies active throughout 2024 doubled, although they contributed to a much smaller percentage of the overall growth in investments. This included some startups which pivoted to the area amid a surge in global demand spurred by the war in Ukraine and at home in Israel. Funding raised by Israeli defense-tech companies grew to $165 million in 2024, from $19 million the previous year.

“The fact that things are literally battlefield proven, and both the understanding of the customer as well as the ability to put it into use and to accelerate the progress of those technologies, is something that is unique to Israel,” said Hasson.

There has rarely, if ever, been so much tech talent available in the job market. Yet many tech companies say good help is hard to find.

What gives?

U.S. colleges more than doubled the number of computer-science degrees awarded from 2013 to 2022, according to federal data. Then came round after round of layoffs at Google, Meta, Amazon, and others.

The Bureau of Labor Statistics predicts businesses will employ 6% fewer computer programmers in 2034 than they did last year.

All of this should, in theory, mean there is an ample supply of eager, capable engineers ready for hire.

But in their feverish pursuit of artificial-intelligence supremacy, employers say there aren’t enough people with the most in-demand skills. The few perceived as AI savants can command multimillion-dollar pay packages. On a second tier of AI savvy, workers can rake in close to $1 million a year .

Landing a job is tough for most everyone else.

Frustrated job seekers contend businesses could expand the AI talent pipeline with a little imagination. The argument is companies should accept that relatively few people have AI-specific experience because the technology is so new. They ought to focus on identifying candidates with transferable skills and let those people learn on the job.

Often, though, companies seem to hold out for dream candidates with deep backgrounds in machine learning. Many AI-related roles go unfilled for weeks or months—or get taken off job boards only to be reposted soon after.

Playing a different game

It is difficult to define what makes an AI all-star, but I’m sorry to report that it’s probably not whatever you’re doing.

Maybe you’re learning how to work more efficiently with the aid of ChatGPT and its robotic brethren. Perhaps you’re taking one of those innumerable AI certificate courses.

You might as well be playing pickup basketball at your local YMCA in hopes of being signed by the Los Angeles Lakers. The AI minds that companies truly covet are almost as rare as professional athletes.

“We’re talking about hundreds of people in the world, at the most,” says Cristóbal Valenzuela, chief executive of Runway, which makes AI image and video tools.

He describes it like this: Picture an AI model as a machine with 1,000 dials. The goal is to train the machine to detect patterns and predict outcomes. To do this, you have to feed it reams of data and know which dials to adjust—and by how much.

The universe of people with the right touch is confined to those with uncanny intuition, genius-level smarts or the foresight (possibly luck) to go into AI many years ago, before it was all the rage.

As a venture-backed startup with about 120 employees, Runway doesn’t necessarily vie with Silicon Valley giants for the AI job market’s version of LeBron James. But when I spoke with Valenzuela recently, his company was advertising base salaries of up to $440,000 for an engineering manager and $490,000 for a director of machine learning.

A job listing like one of these might attract 2,000 applicants in a week, Valenzuela says, and there is a decent chance he won’t pick any of them. A lot of people who claim to be AI literate merely produce “workslop”—generic, low-quality material. He spends a lot of time reading academic journals and browsing GitHub portfolios, and recruiting people whose work impresses him.

In addition to an uncommon skill set, companies trying to win in the hypercompetitive AI arena are scouting for commitment bordering on fanaticism .

Daniel Park is seeking three new members for his nine-person startup. He says he will wait a year or longer if that’s what it takes to fill roles with advertised base salaries of up to $500,000.

He’s looking for “prodigies” willing to work seven days a week. Much of the team lives together in a six-bedroom house in San Francisco.

If this sounds like a lonely existence, Park’s team members may be able to solve their own problem. His company, Pickle, aims to develop personalised AI companions akin to Tony Stark’s Jarvis in “Iron Man.”

Overlooked

James Strawn wasn’t an AI early adopter, and the father of two teenagers doesn’t want to sacrifice his personal life for a job. He is beginning to wonder whether there is still a place for people like him in the tech sector.

He was laid off over the summer after 25 years at Adobe , where he was a senior software quality-assurance engineer. Strawn, 55, started as a contractor and recalls his hiring as a leap of faith by the company.

He had been an artist and graphic designer. The managers who interviewed him figured he could use that background to help make Illustrator and other Adobe software more user-friendly.

Looking for work now, he doesn’t see the same willingness by companies to take a chance on someone whose résumé isn’t a perfect match to the job description. He’s had one interview since his layoff.

“I always thought my years of experience at a high-profile company would at least be enough to get me interviews where I could explain how I could contribute,” says Strawn, who is taking foundational AI courses. “It’s just not like that.”

The trouble for people starting out in AI—whether recent grads or job switchers like Strawn—is that companies see them as a dime a dozen.

“There’s this AI arms race, and the fact of the matter is entry-level people aren’t going to help you win it,” says Matt Massucci, CEO of the tech recruiting firm Hirewell. “There’s this concept of the 10x engineer—the one engineer who can do the work of 10. That’s what companies are really leaning into and paying for.”

He adds that companies can automate some low-level engineering tasks, which frees up more money to throw at high-end talent.

It’s a dynamic that creates a few handsomely paid haves and a lot more have-nots.

Israel Defies Expectations With Surge in Tech Funding Despite War

The 28% increase buoyed the country as it battled on several fronts but investment remains down from 2021

A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.

Playing a different game

Overlooked