Israeli defense startups working with the Ministry of Defense Directorate for R&D (DDRD) (MAFAT) have attracted over $1 billion in financing rounds, mergers, and acquisitions in 2025.
A senior defense official tells "Globes," "The funding in 2025 has been greater than all previous years combined, and the year is not over yet." In 2024, which was also a record year, only about $150 million was raised. In total, funding raised by startups in the field in recent years (through 2025) amounted to about $422 million.
The amount is also impressive on an international scale. Crunchbase data published a few days ago shows that the total funding raised by defense startups worldwide since the beginning of 2025 amounted to $7.7 billion in nearly 100 deals.
The main driver was the 9% growth in global defense budgets to about $2.7 trillion, the largest annual increase in the last 30 years, according to the Stockholm International Peace Research Institute (SIPRI).
"The two years of war have benefited startups"
Growth is occurring despite the fundamental challenge of the field, in which there is a single customer in Israel: the Ministry of Defense. The leading user is the Israel Defense Forces (IDF), along with security agencies and many armies worldwide.
Col. Yishai Kohn, Head of MAFAT's Planning, Economics & IT Department, tells "Globes," "When a startup wants customers to buy from it, there are several possible customers, and we are a single address. At the same time, due to global field oversight, there is reluctance to invest in security technologies that are not dual-use (military and civilian). Until two years ago, there was no term for 'defense tech.' The two years of war have benefited startups, due to the conflicts on the battlefield."
Since the start of the war in October 2023, more than 130 Israeli startups have been integrated into the war effort: about 50% in autonomy and AI (including drones), about 25% in sensors and detectors (some against drones and some for deep-tech detectors), and the rest for navigation, electronic warfare, and quantum solutions.
"We have no ability or desire to influence business; it's a free market," stresses Col. Kohn.
"We try to cooperate as much as legally permissible with all the players, and not to say anything bad about anyone. If, for example, we verify that a company has received orders from us, we will verify. This is important for investors. We recently met with a German fund that asked. Our response provides credibility."
This credibility with foreign customers is reflected in the fact that out of the $1 billion raised, some $400 million came from the US company Ondas Holdings.
The company, which operates in the fields of autonomous drones, security robotics, and advanced communications solutions, has made a series of acquisitions in Israel, the most notable of which was the acquisition of Sentrycs, which specializes in anti-drone solutions based on protocol manipulation (Cyber Over RF), for $225 million. This is a company whose product is also used by the IDF.
One unicorn and hundreds of millions of dollars in funding
Another standout in the field this year is Classiq, which develops software tools for quantum computing and raised $110 million, including some from overseas investors.
Drone company Heven became Israel's first-ever unicorn in the defense industry after raising $100 million at a $1 billion valuation, with US quantum computing company IonQ leading the investment.
A similar amount was raised by Kela, which was founded in 2024 and is developing a platform to connect civilian technologies with military systems. Investors included Sequoia, Lux Capital, and IQT, the investment arm of the CIA.
Ondas' significant presence reflects a broader industry trend: most startups are not systems of systems, but the industry is moving toward them. The US company is accumulating technologies through acquisitions, but it is not the only one.
Israeli drone company UVision recently acquired Israeli company SpearUAV, which develops tactical attack drones launched from a capsule. SpearUAV raised $20 million in a Series B round in May last year at a $80 million valuation.
UVision did not disclose the acquisition amount, but "Globes" has learned it was not below the previous $80 million valuation. This is a significant step, but not the only one that UVision has taken in its efforts to become a systems house.
About two months ago, together with US company Mistral, UVision closed a huge deal to supply suicide drones to the US Army for $982 million. At the same time, the company is working closely with German giant Rheinmetall to supply hundreds of UVISION's "Hero" series of walkie-talkies to a NATO member state. International media reports that the deal is worth hundreds of millions of euros.
The third major Israeli defense tech company is Kela, which is developing a range of SCM (command and control) capabilities on a relatively small scale and will bring together startups using an open architecture.
The company is striving to become as broad-based an integrator as possible, accumulating, for example, radar, SIGINT, and interception technologies. If the move is successful, Kela will become a real rival to Elbit Systems, which operates in the field.
Beating the defense giants in tenders
What these companies have in common is their close cooperation with the Ministry of Defense, which benefits them not only in Israel. In the first half of 2025 alone, no fewer than 12 Israeli startups signed export agreements in G2G (government-to-government) frameworks- a record that several years ago would have seemed like a distant dream, when most of the attention in the field was on cybersecurity.
Col. Kohn notes that when the Ministry of Defense works with a startup, it does not take equity. "We view ourselves as an R&D body. Sometimes, we issue large supply orders to companies, which is not insignificant for us either, but this is a calculated risk designed to provide them with security. The companies show investors the supply order."
One of MAFAT's more complex tasks, especially under wartime pressure, is to persuade the security forces to use the systems. "Capacity is limited; it is impossible to take on 200 drone companies, but it is developing. In the counter-drone field, we conduct field trials and deploy them along the border. The limitations are not only in money, but also in the operational scope that is possible."
At the MAFAT Defense Tech conference in cooperation with the Yuval Ne'eman Science, Technology and Security Workshop at Tel Aviv University, the head of MAFAT, Brig. Gen. (res.) Dr. Danny Gold recalled a tender for attack drones, which was won by several startups that formed a consortium to compete with Israel's biggest three defense companies (IAI, Elbit, and Rafael).
More budgets alongside state-guaranteed investment funds
2026 will be challenging from a security perspective, but it is not expected to be comparable to the operational conflicts and order volumes of the previous two years. Therefore, the Ministry of Defense has taken three key steps: First and foremost, Dr. Gold decided that at least 10% of the Ministry of Defense's R&D budget in 2026 will go to startups and not to the three large companies, which are already flourishing due to increased demand from abroad.
In addition, the Ministry of Defense has joined forces with the Ministry of Finance to establish two state-guaranteed investment funds totaling NIS 200 million.
"This will be a different year than the previous one," says Col. Kohn. "The startups are not expected to achieve the same backlog of orders. Given the fact that the large companies have record-breaking exports, it is right to continue to promote the (startup) ecosystem."
The final measure pertains to the API, the Defense Exports Control Department. The Ministry of Defense plans to remove barriers to marketing some classified products to more than 100 countries.