One year after Hamas attacked Israel on October 7, geopolitical tensions continue to undoubtedly impact various aspects of life in Israel. Yet, as they have so many times before, the people of Israel continue to show their resilience. In a very similar way, the Israeli technology has proven that it too has a level of resilience unmatched in the world, and that challenges are opportunities for success, rather than barriers. Israel is known for breeding world-class cybersecurity technology and startups, and while some might expect Israeli innovation to diminish amidst adversity, the Israeli tech-sector is unwavering, and the seeds are being planted for the next big wave of innovation coming out of Israel in 2025.

Turning Conflict into Opportunity

Since its inception over 70 years ago, Israel has faced constant threats, and despite this has remained innovative and adaptable. A large reason Israel generates so many cutting-edge cybersecurity startups is in fact because of these threats and the hands-on experience defending against them that Israelis in military units like Unit 8200 experience. This unit, part of the Israel Defense Forces, is charged with Israel’s cyber defense, and is among the best in the world at it. Having battled against some of the most advanced cyber threat actors in the world while serving in Unit 8200 and wanting to create commercial solutions to defend against them, many alumni often transition into the private sector to found successful startups. An early security pioneer, Check Point Software Technologies, which created the game-changing Firewall-1 software, was born out of technologies developed for national defense. This has been followed by many other success stories, including Palo Alto Networks, Wiz and SentinelOne. Born out of conflict, Israeli tech thrives because of its ability to adapt and find success through adversity.

Driving Innovation and Investment Amidst Challenges

Historically, Israeli companies founded in times of threat and turmoil have proven to dominate and outperform those companies that were founded during less challenging times. Research from Startup Nation Central shows that the success rate (as measured by their ability to go public, be acquired, or reach valuations of over $1B) of companies that raised funds during previous conflicts in 2006 and 2014 were higher than those of companies raising funds in conflict-free periods. Today, despite the challenges the nation is enduring, Israel has had an unceasing flow of investments and acquisitions. Since October 7, 2023, the Israeli tech ecosystem has seen 577 private investment rounds and raised a total of $7.8 billion in funding, with 18 companies each raising over $100m. These achievements indicate investor confidence in the long-term potential of Israel’s innovation landscape.

For example, Dig and Talon were both acquired by Palo Alto Networks for a combined value of $1 Billion just days after October 7. Both Israeli companies were founded less than four years before their acquisition. Google, meanwhile, recently attempted to acquire Wiz, the Israeli cybersecurity startup focused on protecting organizations from cloud threats, for a whopping $23 billion. Dig, Talon, and Wiz prove that the Israeli cybersecurity market continues to earn the confidence of technology powerhouses around the world, and thus we can expect the exits and investments to continue uninterrupted.

Israeli Collaboration

Israel’s reputation as a leading cyber nation is bolstered by strong collaboration within its cybersecurity ecosystem. Partnerships between startups, established companies, and government entities illustrate the strength and cohesiveness of the Israeli cyber community. Israeli cybersecurity innovations have a significant global impact, protecting critical infrastructure and enterprises worldwide.

Government support has played a crucial role in nurturing the growth of the Israeli tech ecosystem The Israeli government invests heavily in cybersecurity through research and development grants, startup acceleration programs, and public-private partnerships. In fact, the Israel tech sector accounts for 20% of the country’s economy, with 400,000 Israelis in the tech workforce. These partnerships have been crucial in maintaining the Israeli tech sector’s momentum throughout times of hardship, and enabling it to maintain its role as Israel’s main growth driver.

Forging Ahead

The country’s ability to innovate in response to challenges is the cornerstone of Israel’s success. Real-world experiences like the current war, while challenging, has managed to strengthen the resolve of Israeli entrepreneurs and Israel continues to produce the most revolutionary cybersecurity technology in the world. The resilience and strength demonstrated over the past year since October 7, 2023 is telling, and will inspire future generations, ensuring that Israel remains at the vanguard of technological advancement. The next wave of innovation is being molded by the lessons learned during these hard times, leading to even more robust and effective cybersecurity solutions.

Three years ago, in January of 2021, Merlin Ventures opened our office in Tel Aviv with a goal of finding the best early-stage cyber startups in Israel and bringing them to the US market. But nearly 25 years before that, our sister company, Merlin Cyber, opened its office in the US, and has continued to grow its business of helping companies succeed in the US Government market.

Over the last few years, however, we’ve seen a challenge in bringing companies into the government market. As the majority of companies moved from offering on-prem software to being SaaS-first and eventually to being SaaS-only, we were hitting a very big snag. While on-premise products could be sold to government agencies with relatively little required in terms of security compliance, cloud-based solutions fall under a compliance requirement called FedRAMP that regularly takes years to complete and costs millions of dollars. Even for late-stage, public companies, it’s a huge barrier to entry. For innovative, early-stage companies it’s a showstopper.

And so, three years ago, around the same time we started building out Merlin Ventures’ presence in Israel, Merlin Cyber started working on a project with the goal of significantly reducing the burden of getting through FedRAMP to allow partners to enter the government market and speed up their time to revenue.

Today, we are excited to announce that that project, Constellation GovCloud®, has achieved its Provisional Authority to Operate (P-ATO) from the US Government and is now open for business.

What does that mean for software companies? Constellation is unique in its ability to accelerate a company’s path through the FedRAMP process. In addition to offloading the majority of compliance tasks, it reduces a partner’s compliance costs as their revenues grow in the public sector market. Constellation partners get a lower cost, more predictable path through the FedRAMP process, while relying on a team of experts that handle the hardest parts of the journey.

Constellation GovCloud® is meant to bring the best software innovation into the US government market, and is not limited to Merlin Ventures portfolio companies. But on the Merlin Ventures side of things, we are very excited about the possibilities Constellation GovCloud opens up to help accelerate our portfolio companies’ entry into the massive US Federal, State and Local government markets.

Today our portfolio companies will tell you the greatest value Merlin Ventures brings is around understanding US commercial markets and getting early customer traction, and that isn’t changing. But with Constellation GovCloud®, that’s only half the story. We invest in the most innovative companies in the world, and with Constellation, we’ve just opened up a massive, untapped market for them.