Israel’s high-tech sector is at a pivotal moment, as indicated by a new report from Vintage Investment Partners, presented by co-managing partner Asaf Horesh. The report, revealed at Israel’s eighth annual “Trends & Forecasts” conference, organized by pre-seed fund Fusion and law firm Pearl Cohen, outlines significant trends in venture capital funding, valuations, and mergers and acquisitions over the past year. It illustrates an ecosystem increasingly marked by concentrated capital flows, high valuations, and a robust investor interest in AI and cybersecurity startups.
The analysis notes that venture capital investment is increasingly consolidating around a smaller number of funds and companies. In the United States, fundraising has markedly slowed, with projections suggesting $61 billion will be raised by 376 funds in 2025, down from 832 funds last year. The median time to close a fund has also increased to 18 months, up from 15.8 months previously.
Despite a decrease in the number of funds, total capital directed to startups in the U.S. remains substantial. Investors allocated more than $250 billion to startups during the first three quarters of 2025, with approximately 58% of that funding going to AI-focused companies. Notably, about half of all investments were concentrated in just 1% of startups, primarily growth-stage AI firms.
Israel presents a different scenario. The country’s dense network of repeat entrepreneurs and intense competition among investors have led to rising valuations at early stages. Between 2023 and 2025, average company valuations in Israel increased by 43% in Series A rounds, 35% in Series B, 29% in Series C, and 36% in Series D rounds. Horesh remarked, “Global investment behavior around AI closely resembles what we saw in 2021-2022, but this can be explained by the unprecedented technological leap humanity is experiencing, accompanied by rapid adoption and significant value creation.”
In terms of sectoral focus, the report identifies cybersecurity and artificial intelligence as the primary drivers of investment activity, with almost all capital flows directed toward these areas. Quantum technologies have emerged as a growing interest, while fintech has declined in relative importance.
The divergence between Israel and global M&A trends is noteworthy. While U.S. and European markets are experiencing only modest recovery, Israel is poised for a record year in mergers and acquisitions. Excluding the notable acquisition of Wiz, deal volumes and activity in 2025 place the country on track for unprecedented performance.
A pre-conference survey conducted by Fusion among over 200 investors highlighted the industry’s evolving challenges and priorities. The intensifying competition for investments in the hottest sectors was identified as the top challenge by 29% of respondents. The ability for local funds to compete with foreign investors has emerged as a growing concern, rising sharply from 10% last year to 23% this year. While raising new funds was ranked third, the share of respondents identifying it as a significant challenge decreased from 38% to 20%.
Investors also pointed to expected sectors dominating the upcoming year, with nearly all respondents (98%) identifying cybersecurity as a leading focus, followed closely by artificial intelligence at 96%. Quantum technologies ranked third at 23%, replacing fintech, which fell to fourth with 20%.
Guy Katsovich, Fusion’s co-founder, noted an improving sentiment: “We are seeing a reawakening in the formation of new funds, something we haven’t seen in quite some time, alongside a renewed entry of non-U.S. foreign investors whose investments are not driven by Zionist considerations.”
Adding to the optimism, Adv. Guy Lachmann, senior partner at Pearl Cohen, indicated that the market is positioned for a post-holiday surge in activity. “There is currently an abundance of attractive acquisition targets that, after about two challenging years, have transitioned to lean and efficient operating models. Many are under pressure to sell, in part because existing investors have pulled back or lack the resources to continue investing.”
As Israel’s high-tech ecosystem adapts to these dynamics, the shifting landscape reflects both local strengths and global pressures, offering new avenues for innovation and investment.
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