Israeli startup funding is entering a different period. AI is changing software economics, foreign investors are returning to the market and more founders are pursuing capital-intensive fields such as deep tech, climate tech, food tech and agritech.
In an IsraelTech interview hosted by Yoel Israel, Guy Navon of Discount Tech discussed what these shifts mean for founders, investors and the Israeli economy. He explained why startups now need stronger business models, how venture debt can extend a company’s runway and what Israel must do to keep more companies, intellectual property and R&D activity in the country.
What You’ll Learn
- Why Guy expects more investment in deep tech
- How startup economics changed as capital became more expensive
- Why foreign investment matters for Israeli companies
- What venture debt offers startups alongside equity financing
- Why more Israeli startups are incorporating in the United States
- How technology-focused banking differs from conventional banking
- What founders often misunderstand about their relationship with a bank
Table of Contents
- Israeli Tech Rebounded in 2025
- Why Investment Is Moving Toward Deep Tech
- The End of Growth Without a Business Model
- Why Foreign Investors Matter
- The Risk of Incorporating Outside Israel
- What Government Policy Can Change
- How Discount Tech Supports Startups
- How Venture Debt Works
- Why Startup Banking Requires Different Underwriting
- Why Founders Need a Banker Who Knows Their Business
Israeli Tech Rebounded in 2025
Guy described 2025 as a strong year for the Israeli technology sector despite two years of war. According to the figures he cited during the interview, equity investment increased by approximately 20%.
He also pointed to a change in startup formation. After eight years of decline, Guy said the number of new startups increased for the first time, rising from roughly 600 to around 700 new companies a year.
AI played an important role in that recovery, but Guy does not expect Israel’s next period of growth to be confined to AI software companies.
He sees new companies emerging in industries that received less investor attention during the previous funding cycle. That shift could broaden the Israeli technology sector beyond its established strengths in cybersecurity, enterprise software and fintech.
Why Investment Is Moving Toward Deep Tech
In 2024 and 2025, much of Israel’s technology investment remained concentrated in AI infrastructure, enterprise software, cybersecurity and fintech. Guy said cybersecurity accounted for approximately one-third of equity investment in 2025, with enterprise technology receiving around one-quarter and fintech another 10%.
He now expects investors to direct more capital toward deep tech, climate tech, food tech and agritech.
AI Is Changing the Economics of Software
AI has reduced some of the time and labor required to develop and operate software. It can also help established companies lower the cost of serving customers.
Guy used customer success as an example. A later-stage startup may reserve human customer success managers for its largest accounts while using AI-based support for customers that generate less revenue.
This does not necessarily make customer acquisition less expensive. As Yoel noted during the conversation, acquiring customers remains costly. AI can, however, reduce the expense of retaining and supporting them.
The resulting change affects where investors see opportunity. If software becomes faster and less expensive to produce, technically demanding sectors that address physical, industrial or scientific problems may become more attractive.
Deep Tech Requires More Capital and Time
Deep-tech companies often need longer development periods than conventional software startups. They may require specialized researchers, physical facilities, regulatory approvals, manufacturing capacity and extensive testing before reaching the market.
That means Israel’s move toward deep tech cannot rely entirely on the funding model used for lean SaaS businesses.
Larger rounds and longer investment horizons will become increasingly important. Guy believes the arrival of new foreign investors can help Israeli companies secure the capital needed to pursue those opportunities.
The End of Growth Without a Business Model
The standard startup strategy changed significantly over the past decade.
Companies founded around 2018 or 2019 were often encouraged to raise money, acquire customers quickly and prioritize market share over efficiency. That approach became harder to justify when interest rates rose and investors had access to more attractive alternative returns.
The first response was a greater focus on efficiency. Guy believes the next requirement is more fundamental: Startups need a viable business model.
Customer Growth Must Create Economic Value
Guy offered the example of a software company earning $10,000 a year from a customer while spending $20,000 or $30,000 to acquire that account. Rapid customer growth may make the company appear successful, but the underlying economics remain unsustainable.
He compared it to a bank paying customers to take out loans. The bank might expand quickly, but the model would fail when the loans had to be repaid.
Founders must now consider how much it costs to win, retain and serve a customer. Growth still matters, but it needs to lead toward a business that can eventually support itself.
AI Can Improve Efficiency, but It Cannot Fix Every Model
AI can help startups automate parts of development, customer success and internal operations. That may allow smaller teams to produce more work or make previously unprofitable customer segments viable.
It does not automatically solve weak pricing, excessive acquisition costs or limited demand.
The companies best positioned to benefit will be those that use AI to improve the economics of an already meaningful product, rather than treating it as a substitute for a clear market and revenue model.
Why Foreign Investors Matter
Guy said Israeli seed rounds remain considerably smaller than their American equivalents. Based on the figures he shared, the average Israeli seed round in 2025 was approximately $8 million to $8.5 million, compared with about $22 million in the United States.
This difference reflected an earlier period when Israeli software engineers were significantly less expensive than their American counterparts. Israeli startups could build companies with less capital, and the funding market developed around that cost structure.
Deep tech creates a different set of requirements.
Larger Rounds Give Startups a Longer Horizon
Guy is seeing American venture capital firms that have not previously invested in Israel begin evaluating opportunities in the country. He also pointed to an increase in rounds exceeding $100 million.
More capital gives startups time to reach technical, commercial and regulatory milestones before returning to the market for another round. It can support projects that would be difficult to finance through smaller software-style rounds.
Guy does not view American investment as a threat to Israeli venture capital firms. Early-stage Israeli investors can finance seed and Series A rounds, while larger American firms lead subsequent rounds and provide access to customers, commercial partners and private equity investors.
For many Israeli startups, those relationships are particularly valuable because the United States is their primary target market.
The Risk of Incorporating Outside Israel
While foreign investment can help Israeli companies grow, Guy is concerned about where new startups are choosing to incorporate.
He said that approximately five years ago, around 80% of Israeli startups were initially incorporated in Israel. Today, according to the figures cited in the interview, more than half incorporate in the United States.
Founders may make that decision to appeal to American investors, access tax advantages or prepare for a market centered in the United States. Guy believes the long-term consequences deserve greater attention.
Incorporation Can Influence Where a Company Develops
An Israeli startup can incorporate in the United States while maintaining its R&D team in Israel. It can also open an American sales and marketing subsidiary without relocating its core technology operations.
The concern is what happens over time.
When senior R&D executives relocate, other technical roles may follow. New intellectual property, products and features may increasingly be developed in the United States. The company can retain Israeli employees while gradually becoming less connected to the local economy.
Guy wants Israel to produce more independent global companies comparable to Check Point, rather than measuring success only through the number or size of acquisitions.
An acquisition can deliver major returns to founders, employees and investors. However, if the acquiring company eventually moves more decision-making, talent and intellectual property abroad, Israel receives less of the company’s long-term economic value.
What Government Policy Can Change
Guy identified the Israel Innovation Authority as an important source of support, particularly for fields that receive less private investment. Its grants can help deep-tech companies pursue research and development that conventional investors may consider too early or risky.
He believes further government action is needed in two areas.
Create More Competitive Tax Incentives
Guy argued that Israel is competing with other countries for startups and investors. If the United States offers more favorable incentives, founders have a financial reason to incorporate there.
Israeli policy should make it more attractive for companies to establish and retain their corporate and technical foundations in Israel.
The objective is not to prevent startups from entering the American market. Israeli companies still need US sales teams, customers and investors. The goal is to keep the company’s intellectual property, R&D activity and core identity connected to Israel.
Encourage More Institutional Investment in Israeli Tech
Guy also called for incentives that would encourage Israeli insurance companies and pension funds to invest more capital in local venture funds and technology companies.
Israeli institutional investors already manage substantial pools of capital, but Guy said they invest considerably more in technology outside Israel than within the country.
Increasing domestic participation could give Israeli startups another source of long-term funding while allowing local savers to share more directly in the sector’s performance.
How Discount Tech Supports Startups
Discount Tech was established as Israel Discount Bank’s technology banking division approximately six years before the interview.
Guy said the division was built around a basic observation: Founders understand technology and the problems they want to solve, but they do not necessarily understand banking. They need a banking team familiar with startup financing, rapid growth, fundraising and international expansion.
Discount Tech supports companies in Israel and through IDB Bank, Israel Discount Bank’s US subsidiary.
Connecting Israeli Startups With the US
One part of Discount Tech’s work is helping founders develop relationships with American investors.
Guy described delegations that bring Israeli startups to cities including Miami, New York and Las Vegas. These programs introduce companies to venture capital firms, potential investors and other members of the American business community.
This support becomes particularly relevant when young Israeli founders move to the United States.
In Israel, entrepreneurs may have networks formed through military technology units, universities, accelerators and the local venture ecosystem. After relocating, they may not know how American investors, banks and customers operate.
A banking team familiar with both markets can help them adjust while maintaining their connection to Israel.
How Venture Debt Works
Venture debt is financing provided to venture-backed companies alongside equity investment. It can extend a startup’s runway without requiring the founders and existing shareholders to fund the entire amount through another equity round.
It is not a replacement for equity.
Guy gave the example of a company that raises $50 million in equity and adds $10 million in venture debt. The additional capital may give the company enough time to release another product feature, sign a major customer or reach another milestone before its next fundraising round.
Reaching that milestone can place the company in a stronger position when it next sells equity.
Why Venture Debt Is Different From a Standard Loan
A conventional bank generally lends to businesses with positive cash flow and a demonstrated ability to repay the loan from operations.
A startup may be losing money and depending on future equity rounds to continue operating. Its financial statements therefore cannot answer every question a lender needs to consider.
Venture-debt underwriting combines elements of banking and venture investing. The lender must evaluate the company’s current finances, investors, market, management team and likelihood of raising additional capital.
Guy stressed that venture debt is a risky asset. It should be used as part of a financing plan, with a clear understanding of repayment obligations and the milestones the additional runway is intended to support.
Israel’s Venture-Debt Market Has Room to Grow
Guy described the American venture-debt market as considerably more developed than Israel’s. American startups can work with commercial banks, specialist lenders and dedicated venture-debt funds.
Israel has fewer active providers, including only a small number of commercial banks offering this type of financing. Some foreign venture-debt funds participate in individual Israeli transactions without maintaining a permanent local office.
Guy believes this leaves room for more lenders and funds to enter the market as Israeli companies pursue larger and longer-term projects.
Why Startup Banking Requires Different Underwriting
Technology banking requires a different assessment process from conventional commercial lending.
A mature business with stable annual growth can be evaluated using its financial history, cash flow, profit and loss statement, and ability to repay debt. A startup’s historical results reveal far less about what the company is attempting to become.
A business with $5 million in revenue may expect to generate $30 million the following year. The lender must determine whether that forecast is credible and how the company intends to reach it.
Evaluating Founders and Future Potential
Discount Tech’s assessment includes both quantitative and qualitative factors. Guy said the qualitative factors can carry greater weight when evaluating an early-stage company.
The team considers questions such as:
- What are the founders’ backgrounds?
- How do the founders work together?
- Can they recruit and lead a growing team?
- Do they understand their market and customers?
- Is the business model capable of becoming profitable?
- Can the founders develop a small startup into a global company?
Guy summarized the distinction as one of direction. Conventional commercial banking looks primarily backward at proven performance. Technology banking must spend more time looking forward at what the founders may be capable of building.
Why Founders Need a Banker Who Knows Their Business
Founders sometimes treat banking as a commodity. They compare products, fees and digital interfaces but invest little time in building a relationship with the person managing their account.
Guy believes that is a mistake.
A relationship manager who has followed a startup for several years understands its customers, cash flows, fundraising history and operating patterns. If the company experiences a short-term cash flow problem, that context can affect how quickly and effectively the bank responds.
“You do business with people, not with companies,” Guy told Yoel.
For founders, the bank should not become the center of the company. Their attention belongs on the product, customers and market. However, having a banker who understands the business can become important during fundraising, relocation, rapid expansion or an unexpected financial challenge.
Key Takeaways
- Guy expects Israeli investment to expand beyond cybersecurity, enterprise software and fintech into deep tech, climate tech, food tech and agritech.
- Startups are under greater pressure to combine rapid growth with sustainable customer economics.
- AI can reduce some operating and customer-support costs, but it does not replace a viable business model.
- Foreign investors can provide the larger rounds and longer timelines required by deep-tech companies.
- Israel needs to keep more startups, intellectual property and R&D activity in the country even as companies enter the US market.
- Tax incentives and greater institutional investment could help Israel compete for new companies.
- Venture debt can extend a startup’s runway alongside an equity round, but it carries repayment obligations and financial risk.
- Technology banking evaluates founders, markets and future potential in addition to historical financial statements.
- A strong relationship with a banker can give founders more informed support when financial needs arise.
Watch Guy Navon’s IsraelTech Interview
Watch Guy Navon’s full conversation with Yoel Israel on IsraelTech for more on Israeli startup funding, deep tech, venture debt, foreign investment and the role of banking in the technology ecosystem.
