Investment in Israeli startups soared about 45 percent this year, despite a period of war and a fresh round of fighting with Iran, as the continued strength of the shekel poses a different kind of challenge to the local industry, according to a new report by Poalim Tech and Dealigence.
Israeli startups raised about $8.6 billion in the first five months of 2026, compared with roughly $6 billion in the same period last year, with the lion’s share of funding flowing to cybersecurity companies and AI startups, according to data collated in the report.
“The data shows that even though the conflict remains, funding is growing, including in March, in which Israel experienced a full-blown war with Iran and [$2.1 billion in] funding continued to flow into Israel,” Elad Har Zahav, head of business development at Poalim Tech, told The Times of Israel. “This has been the strongest half-year since 2021, and if the trend continues for the remainder of the year, it will be the strongest since 2020 and 2021.”
The Poalim Tech-Dealigence report about financial and workforce trends in the Israeli high-tech industry is based on a database of 1,685 startups with significant operations in Israel that employ 161,730 people.
At the same time, the report’s findings showed that not everyone is benefiting, as investors are increasingly more selective. The number of funding rounds this year declined by about 35% year-on-year, indicating that although a larger share of capital was raised, it was invested among a smaller number of tech firms. In addition, cybersecurity and AI startups attracted most of the funding raised this year.
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The report also showed a growing preference of investors to park their funds with startups led by experienced serial entrepreneurs with a track record. The share of funding rounds raised by serial founders rose from 34% in 2025 to 39% in the first five months of 2026.
Elad Har Zahav, head of business development at Poalim Tech. (Courtesy of Poalim Tech)
Tech entrepreneurs and founders were yet again called up on reserve duty during the 40-day war launched with the US on February 28, while running their businesses. For more than two and a half years of hostilities sparked by the October 7, 2023, Hamas massacre, many local startups managed to continue their operations despite fundraising challenges as they sheltered from rockets, and as many of their executives and employees were repeatedly called up to reserve duty.
While geopolitical uncertainty did not appear to deter investors in recent months, the dollar-denominated funds raised by Israeli entrepreneurs and tech founders are worth as much as 20 percent less than a year ago, when translated into shekels. The erosion is hitting local startups in their pockets as they earn and raise funds in dollars, while their costs, including salaries, are largely in shekels.
As the dollar weakened and the shekel recently strengthened to a 33-year high versus the dollar, startups’ financial runways have shortened, meaning they will run out of funds faster than planned. Hence, they will need to build larger cash reserves and tighten expenses to sustain growth and business continuity, the report cautioned.
“Israeli startups that built their business plan a year ago now have less funding due to the difference in exchange rates,” said Har Zahav. “Based on the fact that they now have fewer shekels to work with, they will need to meet investors for the next funding round sooner than they expected to raise capital, or they will have to run faster.”
The continued strength of the local currency over the past year is forcing startups to make tough decisions about cutting costs and hiring abroad, stirring fears about future economic growth. High-tech contributed to about half of the economy’s growth in 2025, and its share of GDP reached a record high of 18.3%, cementing the sector as a major pillar of the Israeli economy, according to data by the Israel Innovation Authority.
In May, Wix, Rapyd and Amdocs became the latest Israeli tech firms to join a wave of layoffs to tighten operations, cut costs, and reorganize their staff amid local currency pressure and measures to adapt to the new automation era.
“The dollar gives you less bang for your buck when it comes to workforce or operational costs,” said Dealigence co-founder and CEO Adam Lazovski.
Lazovski said that the report highlighted an emergence of diverging trends in the high-tech labor market.
An illustrative photo of a center for high-tech companies in Herzliya Pituah, Oct 30, 2020. (Gili Yaari/Flash90)
While publicly traded firms such as Wix and multinational tech companies have continued sweeping layoffs and cost-cutting measures amid uncertainty, artificial intelligence-driven efficiency initiatives, and a weakening dollar, young Israeli startups have maintained relative stability in headcount.
During the first five months of 2026, employment among startups, which raised at least $1 million in the past five years, grew by about 2%, or 5,000 employees, according to the report. However, out of the 5,000 new hires, about 3,700 were not based in Israel. The department driving the most employment growth was sales, said Lazovski.
One reason cited in the report is that “younger companies typically operate with leaner and more efficient workforce structures from the outset, leaving less room for additional optimization.”
“One of the most interesting findings in the report is that macro trends have not changed the fact that young companies still need talented people in order to grow,” said Lazovski. “While some large technology companies are focused on streamlining operations and reducing headcount, Israeli startups continue to hire.”
“This has to do with the fact that most of them operate from day one with small, highly focused teams,” said Lazovski.
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