Most investors will tell you that a country at war is a risky investment. Fear, volatility, and uncertainty about the future weigh heavily on those considering where to put their hard-earned money. Understandably, they would rather wait for peace and stability before betting on the unpredictable future of a hostile region.
Yet, the stock market in Israel – as measured by the Tel Aviv 35 – has surged almost 50% since Hamas terrorists attacked the nation on October 7, 2023. The upward trend has continued during the subsequent military campaigns to dismantle Hamas in Gaza, Hezbollah in Lebanon, and terminate the Iranian nuclear threat.
The shekel has appreciated by over 10% against the dollar in the same period. Top venture capital firms are opening offices in Israel. In 2024 alone, despite conflict, Israel’s tech industry recorded $13.4 billion in merger and acquisition deals, a dramatic increase from $7.5b. the previous year.
Earlier this year, the government raised $5b. in new bond offerings, with demand exceeding $23b. from 300 institutions worldwide. The nation ranks first worldwide in start-ups per capita, first in R&D investments per capita, and significantly outpaces the US in unicorn creation and successful tech exits per capita.
Why the upward trend?
What accounts for this anomaly in a nation under active missile threat, with off-the-chart levels of geopolitical uncertainty?
If you look beneath the surface of economic stats to longer-term social indicators, it is no wonder that investors see a lively society poised for unprecedented growth. A vitality increasingly rare in Western nations is evident – according to surveys, Israel has one of the happiest populations in the world, ranking among the top 10 countries on the planet. It also has the highest birth rate in the Western world, averaging 3.0 children per family.
Furthermore, since its founding, Israel has existed in a reality shaped by hostile neighbors and constant life-or-death threats. Israel’s primary defense is a mandatory conscription of all citizens who come of age into the IDF, with many of them entering elite intelligence units. This ensures an adequate supply of military personnel and instills in the civilian population a military-grade understanding of technology and fast implementation.
This knowledge not only becomes part of the Israeli identity but also creates a pipeline of exceptional talent that feeds into the start-up world. Young entrepreneurs are surrounded by like-minded peers with extensive training in software and intelligence systems, coding and cybersecurity, networking, fintech, and communications – all with a martial sense of discipline.
The opportunities in backing Israel
These technological industries have thrived in Israel precisely because of – not despite – the pressures created by conflict and threats. Savvy investors recognize that the region’s future is bright, and Israeli companies will play a leading role. We know from firsthand experience that the market’s confidence is well-founded.
Over the past six years, we’ve led a coalition of Persian-Jewish families in backing Israel’s top early-stage tech start-ups through Canon Equity. The capital we deployed in 2020 has already been fully returned, achieving returns alongside the top 5% of Venture Capital. And we’re still early – significant upside remains across the portfolio.
Looking forward, we see even greater opportunity. Stunning military victories followed by regional diplomatic developments, backed by President Donald Trump’s and Prime Minister Benjamin Netanyahu’s hard power negotiating tactics in the region, are rapidly leading toward an unprecedented strategic peace initiative for the region – underlining the transformative possibilities of peace. A stabilized Middle East would unlock unprecedented economic integration, further elevating Israel’s position as the region’s technology and innovation powerhouse.
While long-lasting peace and stability are still a ways away, we are confident that fortune will favor those willing to look beyond conflict and uncertainty to seize opportunities in the Start-Up Nation. It’s clear that any smart venture investment strategy should include intentional allocation to Israeli technology. And access to early-stage investing in Israel is crucial.
Right now, the smart money is unquestionably on Israel.
Ariel Torbati is a private equity and venture capital investor based in Los Angeles. He is a founding partner of Canon Equity. Gabriel Halimi is an entrepreneur, venture investor, and community leader. He is a partner at Canon Equity and the founder and former CEO of Flo Technologies.