Israel Tech Sector Relies Heavily on Global Capital, Industry Leaders Say
A Tel Aviv tech panel highlighted that while Israel excels as a technology powerhouse, 70% of its tech funding comes from abroad. Industry leaders discussed the vital role of foreign investment, venture debt, and AI integration.
Israel remains a major technology powerhouse, but it lacks a deep domestic capital market, with approximately 70% of venture funding over the past decade originating from overseas investors. This structural dynamic was the focus of the "Fueling Growth" panel at the recent TECH1 conference in Tel Aviv, held in partnership with local media.
Foreign Investment and Strategic Shifts
Neil Corney, CEO of Citi Israel, noted that global investors remain eager to back Israeli innovation, driven by the sector's proven resilience and strengths in cybersecurity, defense technologies, and artificial intelligence. He highlighted that NATO nations are moving toward defense spending targets of up to 5% of GDP. Citi operates its largest international innovation center in Israel, employing nearly 300 professionals. Corney emphasized that foreign investors evaluate proper capital structures, liquidity, currency hedging, and cross-border capabilities, adding that Citi now defines itself as a technology company with a banking license.
Private Equity and Venture Debt Evolution
Gal Marom, head of private investments at Phoenix Holdings—which manages roughly 700 billion shekels and allocates about 30% of its PE and VC portfolio to tech—pointed out the convergence between venture capital and buyout funds. He noted that firms are actively integrating artificial intelligence across traditional sectors, raising questions about whether tech startups will eventually operate as traditional contractors or industrial producers. With physical AI and defense drones requiring tangible manufacturing, debt financing is playing an increasingly logical role.
Ella-Tamara Adehan, senior managing director at Hercules Capital, stated that the firm has committed over 1.5 billion dollars to Israeli companies over the past two years, including a recent 200 million dollar cybersecurity deal. She explained that venture debt serves as a strategic supplement rather than a direct substitute for equity. As the IPO market remains subdued, venture debt and secondary transactions offer crucial liquidity for scaling companies facing high equity dilution costs.
