Advice for young startups eyeing federal: Does the U.S. Government buy Israeli tech?

With many Israeli startup founders coming out of Unit 8200 and other cybersecurity-related groups within the Israeli military, the solutions they develop are often a natural fit for the types of threats government agencies face. As a result, it’s not surprising that Israeli CEOs are deeply interested in knowing whether they can sell their products to U.S. government agencies. When they ask, we try to give as definitive an answer as we can: Yes, no and maybe.

To answer the question more conclusively, we need to consider that there are multiple groups within the U.S. government, and the security profile and needs of agencies within those groups can vary widely. So, let’s start by understanding those groups:

• Civilian agencies typically deal with the issues of running the country and primarily focus on providing citizen services: Education, Labor, State, Health and Human Services. These agencies have an IT budget of nearly $60 billion.
• Department of Defense (DoD) agencies are related to the military, like the Army, Navy and Air Force. In 2021, DoD reported a budget of about $36 billion for IT programs, although actual numbers are higher considering some of this budget is classified.
• Intelligence Community (IC) agencies gather intelligence for the U.S. government. These are sometimes referred to as the “three-letter agencies,” and include CIA, NSA, NGA and others. Depending on the agency and how it is chartered, it may fall under a DoD reporting structure. Much of the IC budget is classified and not directly reported.

As you may imagine, different agency missions call for different levels of concern about using foreign software. Because of their intelligence backgrounds, we find many Israeli founders gravitate toward wanting to sell to the IC right away. While such technology may serve an obvious need for intelligence agencies, these agencies are also the most sensitive as to where their software comes from and tend to strongly prefer U.S. suppliers. Given that, the IC is not a place we advise Israeli startups to spend their energy.

However, that does not mean the entire U.S. government is off-limits. While there are always exceptions, civilian agencies tend to be far less sensitive to the use of software from allied nations, and some (like DHS) even have programs to encourage Israeli companies to bring their innovations to the U.S. Civilian agencies have massive enterprises, are constantly being targeted by adversaries and are very much in need of the best cybersecurity capabilities available. And these are not small accounts by any measure – the Department of Veterans Affairs alone has more than 300,000 employees, and the U.S. Postal Service has more than 500,000. Meanwhile, as the frequency of attacks against these agencies increases, there is an increased awareness (and budget) around the need for better cybersecurity solutions.

Civilian agencies are generally where we steer Israeli companies to spend most of their initial efforts, but DoD should not be entirely avoided either. While there are certain parts of DoD that will lean heavily toward only using domestic software, a good portion of the DoD is open to using the best solution available that meets their needs. The good news is that this mindset has led to programs like the Air Force’s AFWERX, which is designed to bring innovation into DoD. The challenge for foreign startups, however, is that many of the funds from these programs (Small Business Innovation Research—SBIR—grants, in particular) are limited to U.S.-based companies.

This means that while much of DoD is open to using Israeli startup technology, the sales process can be more difficult than it is for U.S.-based companies. Again, this is not a showstopper, but something to be aware of because many Israeli entrepreneurs get excited when they hear about all the DoD programs that fund innovative startups. That is until they go down the path and eventually realize they need to follow more traditional sales methods.

The U.S. Federal Government is a massive enterprise with some of the most challenging cybersecurity needs in the world. We encourage Israeli companies to take their capabilities to the agencies that need and want them. Ultimately, the startups with a clear strategy for the federal market and an understanding of where to focus precious sales resources are the ones that succeed.