Investment in Israel’s defense-tech sector is expected to nearly triple this year, reaching approximately $1 billion compared with $360 million in 2025, as rising global defense spending and demand for new military technologies draw investors to the industry.
The forecast, presented by Eitan Mandel, head of the Defense Industries Division at the Manufacturers Association of Israel, reflects the growing role of startups in a sector long dominated by major defense contractors.
Speaking at the “Defense Tech: The Next Frontline of Israeli Hi-Tech” conference held during Israeli Hi-Tech Week, Mandel said Israel’s recent wars accelerated the development of military technologies and shortened the time it takes to move products from concept to operational use.
“Israel is currently one of the world’s most advanced and innovative defense-tech laboratories. Over the past three years, we have accumulated extensive knowledge and experience, and the world is watching us,” he said.
“This advantage has driven a surge in investment. Funding for Israeli defense tech jumped from approximately $360 million in 2025 to an expected $1 billion in 2026.”
Before October 7, the development cycle in Israel averaged around two years, compared with eight to 10 years in the United States, from identifying an operational need to delivering a product. That process now takes weeks in some cases, he said.
Mandel added that many Israeli defense technologies have been tested in combat, allowing companies to refine their products based on operational experience. He said the technologies saved hundreds of soldiers and improved the effectiveness of military forces.
“The major advantage of Israeli defense-tech developments is that most of them are combat-proven. These are not theoretical products. They have been tested in the field, saved hundreds of soldiers, improved lethality, and undergone further refinement and improvements following operational experience,” he said.
Thegrowth in Israeli investment comes as governments increase military spending and seek technologies to address lessons from recent conflicts. According to Lital Leshem, founding partner and managing director of Protego Ventures, global defense spending is expected to reach approximately $3 trillion.
She identified three main factors driving the expansion of defense technology: the war in Ukraine, which demonstrated the effectiveness of drones and other rapidly developed systems; rising defense budgets; and changes in regulation and procurement that are making it easier for start-ups to enter the defense market.
However, combat experience alone does not guarantee commercial success, Leshem said. Start-ups also have to demonstrate that their technologies meet the requirements of foreign customers and navigate the mazes of international procurement processes.
“The experience gained on the battlefield is priceless,” she said, adding that “it is one of the things that companies and investors from around the world come to Israel to learn about and acquire. Companies working with MAFAT and the IDF effectively receive a significant endorsement – they prove that they can operate in a real battlefield environment.”
But, she said, that’s not enough if the company doesn’t have a clear path to international markets.
Leshem said that 99% of Protego’s investors are American, and some are concerned about Israeli companies’ abilities to sell in the US and Europe amid the risk of boycotts and sanctions.
“Another challenge is public opinion, both politically and militarily,” she explained. “While the political picture is complicated and entirely different, there is enormous appreciation for Israel’s achievements on the military front.
“Nevertheless, we need to explain to investors why investing in Israeli companies makes sense, while addressing the political risks and their potential impact on business operations.”
Peleg Cohen, head of start-ups at the Defense Ministry’s Directorate of Defense Research and Development (MAFAT), said the directorate’s portfolio includes approximately 320 to 350 companies. Around 180 startups provided operational solutions to problems that emerged during the fighting.
MAFAT issued procurement orders worth approximately NIS 1 billion in the first half of 2026, almost double the amount during the same period last year, Cohen said.
Companies in its portfolio raised about $3 billion during the first half of the year, with the figure reaching around $5 billion when another company operating in the quantum field is included.
But funding remains concentrated among a relatively small number of companies, leaving smaller startups struggling to secure investment.
According to Cohen, “The past four years have changed the way warfare is perceived around the world. In the past, most weapons systems were sophisticated, precise, and expensive, and were therefore developed primarily by large defense companies.”
That said, he said the industry needs smaller, agile companies alongside the major defense contractors. “From our perspective, this is an advantage, not a disadvantage, because it expands the range of solutions and increases competition.”
Despite the increase in investment and procurement, companies entering the sector continue to face lengthy qualification procedures, regulatory barriers, and uncertainty over access to international markets. These challenges remain particularly significant for smaller start-ups seeking to establish themselves alongside established defense manufacturers.
