Israel’s technology sector has spent the past several years operating through war, political uncertainty and an increasingly complicated geopolitical environment. Yet global capital continues to flow into the country, and some investors appear more convinced than ever that Israel can produce the next generation of global technology giants.
For Ori Barzilay, partner at Team8, the explanation is not that investors are overlooking Israel’s challenges. They are watching how Israeli entrepreneurs perform under them.
Interview with Ori Barzilay, partner at Team8
(video: Yaron Brener)
Team8 recently announced it had raised $365 million in new capital, a substantial vote of confidence at a time when questions remain over Israel’s economy, political future and ability to retain its best technology talent. “It’s actually not despite this—it’s because of this,” Barzilay told ynet Global’s Sharon Kidon.
According to Barzilay, years of disruption have transformed the Israeli technology sector’s famous resilience from a slogan into something international investors can measure. “Global investors are feeling about Israel the same sense of urgency that we’re all feeling,” he said. “They see how Israel and the Israeli founders and the whole ecosystem are able to deliver no matter what.”
A few years ago, he added, the industry frequently talked about Israeli resilience. Today, there is evidence behind the claim: major funding rounds, acquisitions and exits, alongside new startups continuing to emerge.
That pressure may even be helping create a new generation of entrepreneurs. “We see this sense of urgency—founders coming out of companies saying and feeling, ‘This is the right time. For me, it’s now or never,’” Barzilay said. “Everyone wants to prove that this is our place and this is still the best technology hub in the world.”
Israel’s place in the AI race
The biggest question facing virtually every technology ecosystem today is artificial intelligence.
The United States has established a commanding position around foundation models and the enormous computing infrastructure required to develop them. That has raised questions over whether Israel, traditionally a global leader in cybersecurity, semiconductors and enterprise technology, risks falling behind.
Barzilay believes the answer lies in understanding where Israel’s competitive advantage actually sits. Israel may not dominate the foundation-model layer, he acknowledged, but that does not mean it is out of the AI race. Instead, he sees an opportunity in the infrastructure and middleware needed to turn increasingly powerful AI models into technology that businesses can actually deploy at scale.
Israel has been here before. During the rise of cloud computing, Israeli companies did not necessarily become the giant cloud providers competing with companies such as AWS. Instead, Israeli entrepreneurs built technologies around the cloud—including infrastructure, cybersecurity, networking and other enterprise layers.
Barzilay believes AI could follow a similar pattern. “We see a lot of infrastructure technologies like networking, virtualization—things that historically Israel really played at the world-class level,” he said.
As enterprises move from experimenting with AI toward widespread adoption, new technical challenges are emerging around infrastructure, security, deployment and management. “This is where we see the Israeli talent coming again and playing at the world-class level,” Barzilay said.
The activity is already visible, he argued, both through large funding rounds and at the earliest stages of company formation.
From Startup Nation to global companies
Another change may be even more important to investors: Israeli entrepreneurs are increasingly building companies intended to remain independent global businesses rather than simply become attractive acquisition targets.
Historically, Barzilay said, Israel was known as an M&A powerhouse. Entrepreneurs developed valuable technologies and companies that were eventually acquired by multinational corporations.
Over the past decade, that model has begun to change. “What we’re seeing is that Israel is able to deliver huge companies and build standalone companies that are actually built in order to stay—not just being sold as an M&A,” he said.
That distinction matters because the economics of global venture capital increasingly reward enormous outcomes.
Investors are not necessarily searching for companies capable of producing a $300 million or $400 million exit, Barzilay explained. They are looking for businesses that could eventually become worth multiple billions of dollars. “I think Israel is exactly in this phase,” he said. “We’re just getting started in that sense.”
Is the AI boom becoming a bubble?
The amount of money pouring into AI has inevitably raised another question: Are investors identifying the next generation of technology leaders, or simply chasing an increasingly expensive trend?
Barzilay acknowledges that capital is heavily concentrated.
“There is certainly a lot of capital pursuing AI, cybersecurity and infrastructure investments,” he said.
One figure, he noted, illustrates the scale of the phenomenon: roughly 95% of capital is going into 5% of companies.
That concentration suggests investors are making increasingly large bets on the businesses they believe could dominate newly created markets. “They’re looking for the new winners in the AI era,” Barzilay said.
For Israel, the challenge is to prove that its companies deserve to be among those winners. The enormous checks being written into selected startups come with equally enormous expectations. Investors want companies capable of defining categories and eventually becoming global leaders.
Barzilay believes Israel has the entrepreneurial and technological capacity to deliver them—and that this explains the “high-conviction investments” continuing to enter the Israeli market.
What Israel needs to do next
Private capital alone, however, may not be enough to secure Israel’s position in the AI economy. Barzilay argues that the government needs to think beyond supporting startups and focus on building an entire AI ecosystem inside Israel. That means attracting the global companies shaping the technology itself.
Israel already hosts major research and development operations belonging to companies such as Intel, Microsoft, Meta and Apple—investments that have helped develop generations of Israeli engineers and entrepreneurs. A similar strategy is needed for AI, he said. The government should consider incentives, including tax measures, designed to encourage leading AI companies and infrastructure players to establish significant operations in Israel.
(Photo: Yaron Brener)
Bringing the world’s most important AI companies into the country would do more than create jobs. It could deepen the local talent pool, expose Israeli engineers to frontier technologies and eventually produce founders who leave those companies to establish startups of their own.
There is another uniquely Israeli component to that talent pipeline: the military. Israel’s globally recognized cybersecurity ecosystem was fueled in large part by veterans of elite technological units, most famously Unit 8200. Barzilay believes a similar pipeline must now emerge around artificial intelligence.
“We need to continue and build this AI talent out of the army,” he said, noting that investments in military AI capabilities are being made first for national security purposes but could ultimately have a significant effect on the civilian technology sector.
The combination, he argues, could be powerful: AI expertise developed inside the military, multinational AI companies establishing a deeper presence in Israel, and the country’s existing culture of startup creation.
“I think that will make this ecosystem thrive when you combine it with the startup talent that we still have,” Barzilay said.
For a technology industry that has spent years proving it can continue operating under extraordinary pressure, the next challenge is different. Israel no longer needs only to demonstrate that its tech sector can survive uncertainty.
It needs to prove that, in the defining technology race of the coming decade, it can build some of the companies that win it.