Nearly two years have passed since October 7, 2023, and yet only now can we begin to fully understand how deeply that day, and the war that followed, have shaped Israel’s innovation economy.
The disruptions were immediate and far-reaching. Waves of reserve duty pulled tens of thousands of skilled workers from their jobs, leaving start-ups and corporates to function with missing engineers, managers, and in some cases, founders themselves. Air travel, always the lifeline of a global innovation hub, became unreliable in the early months of the war and again during the confrontation with Iran last spring. These disruptions and additional reserve call-ups remain a constant.
Investors, unsettled by the uncertainty, grew more cautious, lengthening due diligence processes and concentrating capital in later-stage companies. For many early-stage start-ups, survival was uncertain, and every week became a test of endurance.
And yet, despite all this, Israeli innovation did not collapse. It adapted. In the first half of 2025, companies raised $9.5 billion across 367 rounds, a 58 percent increase compared to the previous half. There were $4.7 billion in mega-rounds and $38.9 billion in mergers and acquisitions, the strongest half-year ever recorded, led by Google’s $32 billion acquisition of cloud security platform Wiz. Hi-tech expanded by 11.8 percent year over year, while the broader economy grew by only 1.5 percent. Few economies could endure this scale of disruption and still deliver such results.
Transformation in innovation
But the story is not only one of numbers, it is one of transformation. The war altered the very character of Israeli innovation. Defense became a live laboratory, accelerating advances in AI-driven systems, unmanned platforms, and cybersecurity. Many of these technologies are already finding their way into civilian life, securing hospitals, protecting energy infrastructure, and managing complex supply chains. Being “battle-tested” is not a metaphor; it is a credential.
Agility, long regarded as part of Israel’s DNA, was put to the test and proved real. Companies learned to function with scattered teams and broken supply lines, while founders sealed global deals under conditions that would have seemed impossible. Travel restrictions forced entrepreneurs to rely on remote connections, yet they still managed to secure global partnerships and funding. What began as a necessity has become a competitive strength.
Even amid disruption, new companies emerged, propelling a start-up baby boom, particularly in defense and HLS sectors, with nearly 20 nascent companies bringing vetted tech to market. Reserve service placed tens of thousands of Israelis at the heart of urgent challenges in healthcare, logistics, mobility, and defense. Many returned determined to build solutions, and out of that determination new ventures were born.
Seeds of renewal
This is the paradox of the past two years: Disruption that tested the system also seeded its renewal. Fragility and resilience are intertwined: fragility in the dependence on a single sector, and in how reserve duty, investor caution, and travel disruptions reverberated through the system; resilience in the creativity, urgency, and determination of innovators who kept delivering, even under fire.
As we reach the two-year mark, this balance defines the moment. Israel’s innovation economy has endured one of the greatest stress tests in history. It bent, but it did not break. Out of the disruption came new technologies, new approaches, and perhaps most important – a renewed sense of purpose. This is the legacy of the past two years, and it will shape the future we now begin to build.■
Avi Hasson is the CEO of Startup Nation Central, a Tel Aviv-based nonprofit organization that promotes Israeli innovation around the world. He previously served as Israel’s chief scientist; founding chairman of the Israel Innovation Authority; and investor in Israeli technology companies.