The Israeli tech ecosystem is on the rebound, but its recovery in the first half of 2025 has been uneven, marked by a growing concentration of capital and a “flight to safety” among investors. While total funding for the first half of the year surpassed $5 billion, the strongest performance since 2022, this growth is primarily driven by a handful of major deals. This uneven recovery has created a complex environment where late-stage companies are thriving, but early-stage startups are struggling to secure funding. As a result, the market shows signs of both strength and fragility, with a clear focus on established players and proven technologies.
The majority of investment is flowing to a select few, late-stage companies. This concentration of capital means that a small number of “mega-deals” are accounting for a disproportionately large share of the total funding. For example, five mega-deals alone captured nearly half of all the money raised in Q2 2025, including significant rounds for companies like Cyera ($540M), AI21 Labs ($300M), and Cato Networks ($239M). This trend reflects a cautious approach from investors who prefer to back proven, mature companies rather than take on the risk of funding new ventures. Consequently, the path for early-stage startups to raise capital has become increasingly difficult, posing a potential threat to the future of Israel’s innovation pipeline.
Funding is heavily concentrated in just two sectors: Cybersecurity and Generative AI. These two fields accounted for 85% of all funding during H1 2025, solidifying Israel’s reputation as a global leader in both. The significant investments include mega-rounds for companies in both sectors, such as the aforementioned. While this focus highlights Israel’s strengths, it has left other promising sectors underfunded and at risk of losing their competitive edge. Areas like climate tech, agritech, and healthtech are attracting far less investment, despite growing global demand for their solutions.
The exit market is slowly getting back on track, but it’s still a mixed bag. The first half of 2025 saw exits reach a total of $5.55 billion, including significant deals like Melio’s $2.5 billion sale to Xero. The pending $32 billion acquisition of Wiz by Google and Next Insurance’s $2.6 billion exit also demonstrate strong interest from buyers. However, the number of exits remains below pre-2022 levels, and IPOs are still a rarity, with only two in the second quarter. This signals that while large, strategic acquisitions are happening, the overall volume of successful exits has not yet fully recovered.
Israel’s tech market is in a period of cautious recovery, defined by a concentration of capital and a focus on late-stage companies. The dominance of the Cybersecurity and Generative AI sectors, while reinforcing Israel’s global standing, has created a funding gap for other areas and early-stage startups. This trend of “playing it safe” by investors, who are more focused on follow-on rounds than new investments, presents a risk to the long-term health of the ecosystem. To maintain its position as a global tech leader, strategic support for early-stage innovation and underfunded sectors will be crucial for nurturing the next wave of Israeli technology.
Reach out to Jeremy Ungar: jeremy.ungar@israeltrade.gov.il Trade Officer in charge of the investments industry, to learn more.
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