Israeli Tech’s Two AI State Solution
Israel’s economy was already split in two. AI is now pushing it further apart.
Welcome to Israel Tech Insider. I’m Amir Mizroch, a former EMEA Tech Editor at The Wall Street Journal. This newsletter is about connecting the dots to give you a sharp, insider’s take on what’s really going on in Israel’s tech industry.
As always, feedback to amir@israeltechinsider.com
Starting with a couple of news hits to get your week going
Israeli Drone Firm XTEND Extends $70M Series B To Boost U.S. Expansion
Avner Netanyahu, the Prime Minister Benjamin Netanyahu’s less controversial son, is joining defense tech investment firm The Umbrella Corporation, part of the Group 11 venture fund, as Senior Associate. Group 11 is run by Dovi Frances, an investor with ties to Netanyahu senior. On a side note, the name and logo of Umbrella Corporation are identical to those of the fictional and sinister biotech firm from the Resident Evil video game series, known for unleashing a zombie virus.
Avner Netanyahu’s Umbrella Corporation. 
Resident Evil’s Umbrella Corporation. SmartShooter announced a new order to supply the US Marines its AI-powered, rifle-mounted fire control systems that lock onto and track targets, guaranteeing accurate shots against drones and ground targets regardless of operator skill level.
Exodigo Raises $96 Million Series B to Expand AI-Powered Underground Mapping. To understand just how brilliant and important this company is, listen to my Dejargonizer podcast with founder Jeremy Suard» Why Are Public Works Projects Always Over Budget and Never On Time?
Here’s a new list of Defense Tech funds and entities investing in the field, as well as a constantly updating list of Defense Tech startups
Decart AI unveils real-time video-to-video transformation tool. Try it yourself it’s pretty cool.
Your newsletter writer and his lovely wife as rendered by Decart.
Israeli Tech’s Two AI State Solution
Israel’s economy was already split in two. AI is now pushing it further apart.
Israel's AI revolution is creating two economies—and the gap is becoming unbridgeable. While AI startups consume 25% of all tech ventures and attract nearly half of venture funding (11% of GDP, globally second only to Singapore), the June 2025 Central Bureau of Statistics survey exposes brutal reality: 74% of non-tech businesses dismiss AI as irrelevant to their operations. Manufacturing leads the resistance—just 3% deploy AI for cognitive tasks versus 23% in high-tech sectors. This isn't adoption lag; it's active rejection by traditional industries that anchor domestic employment but increasingly resemble economic deadweight.
The paradox sharpens: Israel dominates global AI investment density yet lacks foundational Large Language Models, suggesting dependency rather than sovereignty. Meanwhile, only 17% of the 28% of firms claiming AI adoption actually pay for services—revealing surface-level experimentation among the committed few. For a nation bleeding talent through emigration while managing regional warfare and political crises, AI has become a self-reinforcing acceleration mechanism where winners compound advantages while laggards surrender relevance. The Central Bureau's measurement captures more than usage patterns—it documents the real-time creation of permanent economic castes, where proximity to AI determines not just competitiveness, but survival.
Source & Methodology: Israel CBS “Business Tendency Survey – June 2025” with a nationally representative sample of 34,708 firms (10+ employees), analyzed via firm count and employment-weighted metrics.
Israeli tech's H1 2025 funding surge masks a brutal winner-take-all consolidation that's quietly killing the startup ecosystem. While $5.24 billion across 199 deals marked the first time since H2 2022 that funding crossed $5 billion, the distribution tells a darker story: just 17 mega-deals ($50M+) consumed $2.01 billion—68% of all capital—leaving 182 companies scrapping over table scraps. VCs have essentially abandoned new bets, desperately propping up existing portfolios as follow-on investments dominate while both seed and Series A rounds declined since Q4 2024. The math is merciless: 300-350 new companies entered an ecosystem where deal volume sits at late-2023 nadir levels, creating Darwinian conditions not seen since COVID's onset. Google's anticipated $32 billion Wiz acquisition has inflated cyber valuations across a sector where 250+ deals closed during 2020-2022's boom—most now facing brutal reality checks against impossible benchmarks. The bifurcation between mega-winners and the desperate masses represents more than market correction—it's the real-time creation of a startup aristocracy where only the pre-funded survive.
Catz out of the bag
Heartwarming and important comments by Oracle President Safra Catz. Speaking at Calcalist’s National Economic Conference in Tel Aviv, Catz expresses renewed optimism in Israel’s innovation ecosystem, credits the country’s top-tier AI and cybersecurity talent for driving Oracle’s cloud and AI growth, underscores Israel’s pivotal role in a reshaped Middle East under the Abraham Accords with robust U.S. backing, and argues that Oracle’s outspoken pro-democracy stance has directly fueled its impressive financial and strategic performance. Full video interview here.
Key Points
Catz says she is far more optimistic about Israel’s prospects now than she was immediately after October 7, noting continuous growth.
She returned to Israel to support her employees and was personally uplifted by meetings with soldiers, hostages’ families, and the broader public.
According to Catz, Israel’s creative problem solvers continue to attract major U.S. investments and corporate acquisitions.
The Abraham Accords, Israel’s victories against Hezbollah, and regional geopolitical shifts have elevated Israel to a central role in the Middle East.
Oracle’s clear pro-Israel, pro-freedom stance, she asserts, has strengthened customer loyalty and driven a 38% stock rise year-to-date.
Israeli early-career scientists saw a dramatic 70% drop in successful European Research Council (ERC) grant applications under the EU's Horizon program, with approvals falling from 29 out of 109 in 2024 to just 9 out of 100 this year—plunging the success rate from above-average to below European norms. While some academics warn this collapse may signal a "silent boycott" or reflect Israel's growing research isolation, others point to war-related disruptions and Switzerland's renewed participation as additional complicating factors. Despite the unprecedented decline for early-career researchers, Israeli advanced researchers maintained stable grant success, highlighting a fractured and precarious landscape for Israel's scientific global standing.
Opportunities
The Israeli Innovation Authority, in partnership with the Representative Claims Fund and Ministry of Health, has launched an initiative to advance physical rehabilitation in Israel through tech, specifically targeting the healthcare challenges that emerged during the October 7 War and ongoing military operations. This call for proposals invites Israeli technology companies specializing in biotech, robotics, and bio-convergence to develop pilots that will improve the quality, accessibility, and duration of rehabilitation processes, with particular emphasis on helping war casualties reintegrate into society, employment, and leisure activities. The program offers substantial financial support of 20-50% of approved budgets, with additional incentives for companies in national priority areas, while focusing on advanced technological solutions including assistive robotics, brain-machine interfaces, mobility technologies, and digital health platforms. For more information contact growth@innovationisrael.org.il
The Innovation Authority has published a call for proposals to establish new technology incubators, in a new model of Venture Creation + early-stage capital investments from pre-seed to Series A.
I tended to assume that Pareto distribution is an intrinsic feature of the VC landscape-but perhaps that refers to Exits rather than funding?