Israeli high-tech breaks records in 2025, but growth stalls

The Israel Innovation Authority’s annual report for 2025 presents a complex picture of Israeli high-tech: while investment flows and exits are breaking records and placing Israel at the forefront globally, both employment and GDP remain stagnant.

The most concerning figure is in employment. High-tech jobs have remained at around 11.5% of the total workforce, about 403,000 people, for three years, after a decade in which the number of employees doubled from 200,000 to 400,000. This stagnation is particularly pronounced in research and development, which saw a 6.5% decline in the first half of 2025, around 14,000 fewer workers compared with the previous year. Since 85% of state revenue from high-tech derives from wage taxation, the lack of employment growth translates directly into stagnant government income from the sector.

Wiz founders.

The same pattern is evident in GDP. In 2024, high-tech’s contribution to GDP stood at about NIS 317 billion, 17.3% of national GDP, virtually unchanged from 2023. Growth has slowed to less than 2% annually, down from more than 5% on average over the past decade. The composition of exports has also shifted: software services now account for about 72%, while tangible products have fallen to just 28%, compared with 60% in 2013.

Cybersecurity remains Israel’s dominant field for investment. About 30% of investments in 2024 and the first half of 2025 were directed to cyber companies, and this rises to about 38% when excluding Safe Superintelligence’s major round in enterprise software. This represents a sharp increase from 19% in 2023. Israel now accounts for more than 20% of global cyber fundraising, but this heavy concentration raises concerns about resilience and diversification.

The report also highlights a continued decline in new startups. In 2024, only about 400 new companies were founded in Israel, almost half the annual average of the previous decade. The slowdown is particularly evident outside cyber and enterprise software, with cleantech, agritech, digital health, and advanced industry producing very few new ventures. This deepens reliance on narrow sectors and reduces the potential for broader job creation.

Meanwhile, Israeli venture capital activity has contracted sharply. In the boom years of 2021–2022, around 60 local funds raised about $6 billion annually. In 2024, only 22 funds raised just $1.3 billion, down from 34 funds raising $2.2 billion in 2023. This leaves many early-stage entrepreneurs struggling to secure financing, often pushing them toward foreign investors or relocating abroad.

On the positive side, Israel’s deeptech sector remains a standout. More than 1,500 deeptech companies now operate locally, attracting over $28 billion in investments since 2019, placing Israel first worldwide outside the U.S. Strength is particularly visible in agro-foodtech, where Israel commands about 10% of global investment. Other areas of prominence include photonics, quantum computing, digital health, and advanced manufacturing.

While deeptech is riskier and slower to mature than software, it creates long-term value. Thanks to strong universities, an entrepreneurial culture, and security-related expertise, Israel has built the critical mass to lead globally in these emerging fields.

Exits and investments also remain a bright spot. In 2025, Google’s $32 billion acquisition of Wiz became the largest deal in Israeli high-tech history and one of the biggest global tech transactions of recent years, cementing Israel’s central role in innovation.

M&A activity also surged: in 2024, Israeli private companies saw nearly $12 billion in deals, almost double 2023 levels, with greater diversity of international buyers and funds entering the market.

Fundraising has also recovered after the 2022–2023 downturn. Israeli firms raised $10.6 billion in 2024, and another $7.2 billion in the first half of 2025, a pace exceeding expectations. More than half of this came from rounds above $50 million, underscoring investor confidence in mature companies.

Israel now ranks consistently among the world’s top five hubs for capital raising, alongside San Francisco, New York, London, and Boston, an extraordinary achievement given ongoing war and geopolitical uncertainty.

According to Dror Bin, CEO of the Innovation Authority: “2025 reveals the dual story of Israeli High-Tech. Israel is consolidating its position as a global Deep-Tech center, second only to the U.S. in the Western world, with more than 1,500 active companies and a share exceeding one-third of all capital invested in local High-Tech. Strong fundraising in AI and quantum places us on the front line of global innovation. However, the report points to troubling trends. High-Tech output has been stagnant for two years; the number of R&D employees is shrinking; new venture creation is lower than in the previous decade; and VC fundraising is decreasing.”

Bin added: “These are not marginal data points but indicators of risk that we take very seriously. In parallel, we see a global paradigm shift. Governments are investing hundreds of billions, becoming direct players in technology and shaping national value chains in areas like semiconductors, AI, and energy and Israel must respond to these shifts to avoid losing its comparative advantage. This is a moment of truth that only a broad strategic move, which involves combining public policy with private investment, will ensure that today’s achievements become the foundation for growth and leadership in the race that defines the economy of the future.”