Israel’s entrepreneurs proved innovation can prevail even in turmoil. Now, Veteran VC and startup nation pioneer Erel Margalit explains why innovation, not politics, defines Israel’s future
On the eve of the October 7 war, Israel’s high-tech sector was powering more than 20% of the country’s GDP and employing about 400,000 people, one of the highest concentrations of tech talent anywhere in the world. Even in a cooling global market, Israel continued to attract capital. In 2023, startups raised roughly $10 billion, and the “Startup Nation” brand stood for technical excellence and global scale. What happened next would challenge every assumption about resilience, leadership, and the future of Israeli innovation.
The outbreak of war immediately strained the sector. Around 15% of tech workers were called into reserve duty, and hundreds of firms temporarily lost key team members. Travel restrictions, flight cancellations, and security concerns made it difficult for founders to meet customers or investors abroad.
For many, survival required global teamwork. One of the founding figures of Israel’s startup ecosystem, JVP Founder and Chairman Erel Margalit says the resilience went far beyond the local scene: “How did people survive? Teams became more than just Israeli, they became international. Americans, Israelis, Europeans, people all over the world came together. That’s how companies came out stronger from this challenge.”
Israeli Heritage, International Strategy
But that was only part of the story. Margalit highlighted his view on how Israeli-origin technology became even more relevant during wartime, particularly as global concerns over terror financing grew. “The war suddenly brought forward major issues like money laundering and the urgent need to block terror financing, challenges that Israeli companies were uniquely equipped to solve through their advanced AI systems. From the crisis came opportunity. Governments and banks across the Middle East, Europe, Africa, and North America sought their technology.”
Many firms decentralized operations, moving business teams abroad while keeping R&D centers in Israel, effectively accelerating globalization under pressure. Margalit calls it “Israeli heritage, international strategy,” a dual model that ensured business continuity despite the conflict. “Are developments still on time? Can people still come and go? Are we meeting clients?” He described the mindset of Israeli entrepreneurs during the war. “The answer is yes. In Israel, New York, and Europe. Overcoming hardship and achieving the impossible goes with us throughout our journey.”
Despite the turmoil, the data revealed an unexpected story of resilience. Between October 2023 and April 2024, Israeli startups raised $3.1 billion in 220 funding rounds, according to Reuters.
Even as rockets fell, Israeli tech saw two defining moments. In early 2025, Google bought Wiz for $32 billion, the largest exit in Israel’s history. Weeks later, Palo Alto Networks acquired CyberArk for $25 billion. CyberArk’s rise was long in the making, with Margalit as Chairman and JVP backing the company from an early stage, and as it grew from a small Israeli security firm into a global public company. Taken together, the Wiz and CyberArk deals reflect years of accumulated expertise in cybersecurity rather than a wartime anomaly.
Part of what allowed these companies to keep advancing during the war was the dual operating structure many Israeli firms have adopted. Margalit splits his time between Jerusalem and New York, where JVP’s Margalit Startup City hub hosts more than 35 companies, many of them Israeli-founded but U.S.-facing, working with banks, insurers, and government agencies. Even in the hardest months of the war, says Margalit, international partners continued flying in to meet teams face-to-face. “Heads of state and industry leaders come here because innovation is the bridge,” Margalit says. “It gives substance to cooperation and a framework for what happens the day after conflict. Innovation, in this context, is not only an economic asset, it is political currency.”
New York today is home to over 450 Israeli companies, including 65 unicorns, making it one of the largest concentrations of Israeli innovation outside Israel. The model seems deliberate: R&D and product built in Israel, go-to-market strategy, customer expansion, and partnerships executed in North America, Europe, and beyond. It’s a structure built for resilience.
During a period when Israel faced growing diplomatic pressure and complex international scrutiny, the innovation economy continued to expand. In 2024, cyber investments represented 42% of all Israeli high-tech funding, and defense-tech startups nearly doubled in number, from 160 to 312 within a year. “Throughout Israel’s modern history, from the intifadas to previous Gaza conflicts, innovation has served as a stabilizing force,” Margalit noted.
And still, challenges remain. In the past two years, venture-fund fundraising dropped to its lowest level since 2015, and investment became increasingly concentrated in a few mega-deals. Talent shortages, a lingering effect of reserve duty, continue to slow hiring. Political uncertainty and shifting government policies have added pressure, making investors more cautious and slowing early-stage support programs. Yet, as Israeli entrepreneurs insist, these are structural hurdles, not existential ones.
Collaboration Over Isolation
The future of the region remains uncertain, but the fact that so many nations came together to help end the war and encourage cooperation across divides has opened an unprecedented window of opportunity. Israeli entrepreneurs are already positioning themselves not only for recovery but for regional leadership. “Now that the war is over,” said Margalit, “many of the Israeli startups already active in the GCC and the UAE will serve as a bridge for regional cooperation through the very businesses they’re building. The opportunity lies in collaborations.”
Innovation, once a local story of resilience, is now emerging as the region’s shared language. Startups in AI, fintech, cyber, and climate tech are expanding partnerships with Gulf banks, North African energy firms, and European corporations. “If innovation can change a country,” says Margalit, “it can change an entire region.”
For Margalit, the path forward extends beyond economics: “As a Jerusalemite, I see coexistence daily in our technology center, where Jews and Arabs innovate side by side. Collaboration isn’t a dream, it’s a reality waiting to scale.” He envisions a regional innovation corridor connecting Israel, Saudi Arabia, the UAE, Egypt, Jordan, Morocco, and beyond in partnership with Europe and the United States. “Now more than ever, what didn’t seem possible only months ago can be realized. Together, we can build a coalition rooted in security, shared prosperity, and human potential. The choice before us is stark: life or death, progress or paralysis. The potential is here, now, and it’s time we seize it for all our peoples.”
