Over the past year and a half, the startup nation has faced significant challenges due to the Swords of Iron War. Extended reserve duty has reduced the operational capacity of startups and innovation hubs, creating a sense of uncertainty for the ecosystem’s future.
In an interview with Teddy Nehmad, one of the leading and most influential entrepreneurs in Israel’s local and global startup tech community, he shared his experience navigating the startup ecosystem through times of crisis.
Nehmad is the founder of C Capital Group, which invests in tech ventures across various fields, and the NGO Innovation without Nations. Recently, he also launched the first social network powered by artificial intelligence, Animove.
Despite the challenges and hardships faced by the nation, Israeli entrepreneurs persisted in overcoming obstacles and successfully built thriving ventures. In 2024, it was reported that Israeli high-tech startups raised $12 billion, marking a 31 percent increase compared to the previous year.
When asked how he’s adapted during these times, Nehmad shares: “Great entrepreneurs are tested during moments of crisis, and these situations reveal their true ability to navigate challenges. Resilience and adaptability are critical traits for any entrepreneur working in innovation.”
Nehmad continues to share that during the first few months of the war, many people had a pessimistic outlook, which led to a decline in investments. However, as time passed and stability gradually returned, the situation improved. “By the end of the year, the overall picture was not as bad as initially feared,” says Nehmad.
Artificial intelligence funding
On a global scale, 2024 was the year of AI, with reports revealing that nearly a third of all venture capital funding was allocated exclusively toward AI-related projects, surpassing $100 billion in total investment. This marked an 80 percent increase when compared to 2023.
When asked about the increase in global AI funding, Nehmad explains: “On the surface, it might seem that Israel has fallen behind, as 2024 was a critical year for the early development stages of AI, and the war certainly didn’t help the country's ability to compete in this space. However, even during this challenging year, we saw the launch of numerous AI projects despite the less-than-ideal conditions.”
Although faced with challenges posed by the ongoing war, Israel has managed to maintain a strong presence in this sector. Startups such as Twine, an AI cybersecurity company, successfully raised $12 million in Seed funding; Converge Bio, a generative AI platform, secured $5.5 million in November; and Fermata, an agricultural technology firm using computer vision technology, raised $10 million in a Series A funding round led by Raw Ventures.
“Data shows that there was only a 6 percent decline in overall startup funding since last year, which is a surprisingly positive indicator and a strong vote of confidence in Israeli entrepreneurs and our technologies,” says Nehmad. “That being said, this figure is somewhat misleading. We have seen increased concentration, with nearly half of the total investments flowing into just ten companies, while the overall number of funding rounds dropped by approximately 12 percent.”
As the country focuses on recovery, prioritizing increased funding for a diverse array of startups is crucial. This strategy will help revive the tech industry to its pre-war status. Looking at past global crises, like COVID-19 and the 2008 financial crisis, it’s clear that the startup nation was able to rebound and become stronger during these times, and the same is expected during this period.
Having navigated both crises and other periods of economic instability, Nehmad notes that ”the current crisis is unique in that the global tech industry did not come to a standstill as it did in past downturns. This created gaps, particularly in rapidly evolving fields such as AI and robotics, where innovation continued at full speed.”
He continues by sharing: “However, as with the conclusion of every crisis, we can expect a period of significant growth across all fronts. Investors are poised to seize the right moment to capitalize on the forthcoming wave of investment opportunities that will arise.”
While there is no definitive end date to this war, the Israeli tech industry continues to grow and persevere during times of hardship.
Despite the evident challenges over the last 16 months, startups have managed to adapt and innovate, driving growth while maintaining momentum during these unprecedented times. Israel has shown that it can pivot when necessary, and startups will continue bringing new ideas to the forefront that address immediate and future challenges on a local and global scale.