Addressing the Knesset last month, on the day when Israel’s 20 living hostages were released by Hamas, President Donald Trump spoke about “new bonds of friendship, cooperation, and commerce” across the Middle East.
“It’s time to translate these victories against terrorists on the battlefield into the ultimate prize of peace and prosperity for the entire Middle East,” he said.
If the ceasefire with Hamas holds, the boost to Israel’s economy could be enormous, led by Israel’s hi-tech sector, which accounts for 53% of the country’s exports, 24% of tax revenue, and 20% of GDP.
Saudi normalization
After two years of growing isolation, boycott threats, and protests, expanding the Abraham Accords to normalize relations with Saudi Arabia and other neighbors could allow Israel to resume its tech leadership, restoring an international reputation tarnished by the war against Hamas in Gaza.
“There is already an entire group of people who are working on this new Saudi relationship. They have been flying back and forth for years, preparing,” said Gabby Czertok, a serial entrepreneur and CEO of The Builders, a Tel Aviv innovation platform that connects Fortune 500 companies with Israeli technology.
“There are hundreds of investors waiting on the sidelines to pump huge amounts into Israel once this can unlock, and that in turn, will attract new talent. It will create a new cycle of money coming in and partnerships that will be forged and people who will do business,” he said.
But how much has the war, preceded by controversy over the government’s judicial and regulatory reforms, damaged the hi-tech jewel in the Start-Up Nation’s crown?
IVC, which tracks Israel’s venture capital community, says that while total start-up investment rose 13% year-on-year to $11.9 billion by the end of Q3, analysts were concerned about some underlying trends.
The IVC-GNY-KPMG Investors Report for the first half of 2025 recorded “a notable decrease in both first-time investments and new fundraisings,” with fewer new Israeli funds being established.
Domestic investment
While money continues to flow from foreign investors, with large firms like Sequoia and Greylock expanding operations, domestic VC is declining. Israeli venture firms raised just $260 million in the first half of 2025, down from $1.2b. in 2024 and $2.2b. in 2023.
However, IVC notes that Israeli venture funds “still hold nearly $11b. in dry powder – capital available for new investments – which is expected to fuel further activity and support the ecosystem.”
M&A (mergers and acquisitions) activity jumped nearly fivefold in the first three quarters to $71b., fueled by Google’s $32b. purchase of Wiz, and Palo Alto Networks’ $25b. acquisition of CyberArk.
Behind those huge numbers is the next wave of domestic Israeli investment.
“Every major M&A like Wiz creates another 15 or 20 new angel investors because all these guys suddenly have money, and all these people are investing back in their friends,” Czertok said, adding, “A lot of that money is going straight back into the industry and the ecosystem.”
He also believes that the official surveys exclude dozens of smaller emerging Israeli funds fueling a new wave of early-stage investments.
“There is a whole undercurrent that is underreported in the published data. They don’t know about this new generation of investors,” Czertok said.
“Sequoia and other big funds are opening offices in Israel and are starting to invest here, taking the big business from some of the major local funds. But the small funds are also building upwards.
“Add these funds together and you see the same amount of investments, but they’ve shifted to another type of vehicle.”
Stable economy
Despite the war, Israel’s $550 billion economy, among the 30 largest in the world, is stable, secure, and growing.
The Tel Aviv Stock Exchange, whose 34% climb was already among the highest in the world this year, soared another 6% on the ceasefire and the return of the hostages. The shekel is among the world’s strongest currencies, near an all-time high against the dollar and the euro.
As The Financial Times noted in July, Israel is “the region’s dominant economic force,” the only country in the world to have risen from a poverty-stricken developing country at its founding in 1948 to the ranks of just 40 developed economies as defined by the IMF and then be classified as a developed financial market.
Israel’s GDP per capita has nearly tripled since 2000 to more than $55,000, which is 70% of the US equivalent, while Saudi Arabia’s is a third of the US’s, roughly the same as 25 years ago.
But analysts warn against complacency.
“From a policy perspective, the assumption that Israeli hi-tech is always resilient and will necessarily bounce back is not a responsible policy,” warns Rise Israel, an independent think tank.
Israeli tech depends on just 300,000 highly qualified people, warns Prof. Dan Ben-David of the Shoresh Institute. “If a critical mass of these people decide to leave, Israel will enter a spiral of collapse,” he said.
Emigration has risen from an average of 36,000 each year until 2021 to 82,700 in 2024, the highest number ever recorded.
War pressures
Henriette Fuchs, international tax expert and partner at the YE Tax firm in Tel Aviv, said she has seen several successful hi-tech entrepreneurs move their families, activities, and some of their businesses abroad.
Initially, this was due to concerns about the government’s legislative plans in 2022 rather than the war in Gaza. “The legal and judiciary reforms proposed in the past should be neutralized immediately,” Fuchs told The Jerusalem Report.
“That should be an absolute priority on the to-do list of the government in order to preserve the transparency and dependency of Israel’s legal system, which investors and business initiators need to feel comfortable,” she said.
Boaz Feinberg, leading partner in the tax practice at the Arnon Tadmor-Levy law firm, said even when businesses move outside Israel, the entrepreneurs usually stay.
“Most founders, even when they are registering IP outside Israel or operating through foreign holding companies, they themselves are not emigrating,” Feinberg said. “It does happen, but I don’t see a pattern.”
Czertok said that there are now 20 available places at his kindergarten in north Tel Aviv, where there had previously been strong competition for admission.
The local high school has cut its intake from three classes to two. But he noted an opposite trend of more successful, “high-caliber” people moving to Israel, visiting, and investing.
He said that Israeli entrepreneurs often leave for a while, but most return.
“Some will never come back. Others will come back with tons of new connections, experience, and added value – and that’s pretty much the story of Israel,” Czertok stated.■