“If you will it, it is no dream.”
Theodor Herzl
Israeli tech just posted a $3.1 billion quarter. That’s a 34% jump over Q1 2025, according to preliminary data from IVC and LeumiTech. Include undisclosed rounds, and the number climbs to roughly $3.6 billion. By any standard, that’s a strong opening to the year.
But here’s the thing: many of those rounds were raised under missile fire.
Four weeks into Operation Roaring Lion, the Israel Innovation Authority surveyed 637 tech company CEOs and founders. The picture that emerges is a sector that’s simultaneously thriving on paper and straining at the seams. As a VC investing in Israeli startups from day one, I think the tension between these two data sets is the real story of Q1.
Imagine the calendar of a startup CEO. Talking to customers, employees, investors, working on strategy, execution and product launches.
Now add 3-6 alarms per day… each one sounding because of a ballistic rocket hurling from thousands of kilometres away. Not only it’s stressful and intense, but also extremely disruptive to business.
Strong numbers, real pressure underneath
The IVC-LeumiTech data paints an optimistic picture: 98 funding rounds, early-stage investment surging 164% since late 2023 to reach $1.3 billion (42% of total funding), and cybersecurity commanding 40% of all capital raised. GenAI held steady at around 16%.
But the Innovation Authority survey reveals the operational cost of that resilience. Among those 637 companies: 71% reported that the war impacted their fundraising processes, with 37% experiencing delays, 23% saying investors postponed decisions, and 11% seeing processes cancelled outright.
Only 11% of companies reported zero employee absences. 48% reported that more than a quarter of their workforce was absent, driven by safety restrictions (35%), lack of childcare or educational frameworks (33%), and reserve duty (11%). 87% reported delays in product development or hitting milestones, with 42% experiencing significant delays. And 75% were impacted by restrictions on international flights, making it harder to meet customers, attend conferences, and close deals.
Perhaps most concerning for the long term: 31% of companies said the situation has led them to consider relocating operations abroad, with 80% of those being companies that operate primarily in international markets. Another 9% considered it but decided against it. And 12% said that if the security situation continues for another month, it could result in their company closing, a figure that climbs to 17% among the smallest startups (up to 10 employees).
The money is flowing, but it’s concentrating
Based on the preliminary Q1 2026 IVC report, the top decile of rounds accounted for 51% of all capital raised in Q1. The number of deals stayed flat compared to Q1 2025, meaning the increase in total funding is driven by a handful of very large rounds rather than a broad-based expansion.
Mid-stage is weakening. Series B and C captured only 29% of total funding, continuing a trend that started before the war. Defense tech, which spiked to over 8% of funding in 2025, dropped below 1% in Q1 2026.
The capital is clearly there, but the distribution tells a more nuanced story than the top-line number alone.
Europe’s absence is a missed opportunity on both sides
An analysis published in CTech adds another layer to this picture. Looking at roughly 280 top Israeli companies and every seed round above $10 million since 2023, the data reveals that 86% of Israel’s largest seed rounds have zero European VC participation. Only about 7% have a European independent venture fund as an investor.
For comparison, roughly 62% of these same companies have a US venture fund on their cap table, and about 72% have an Israeli one. The list of absent European names is striking: Atomico, Balderton, Northzone, EQT Ventures, Creandum, Lakestar, Earlybird, HV Capital, Cherry Ventures, Elaia, Sofina, and Kinnevik, collectively managing over $25 billion, appear on none of these cap tables. Not once in five years.
This matters now more than ever. With Israeli companies under operational stress and actively looking at international expansion (or relocation), European VCs could be natural partners. But the relationships and pattern recognition simply aren’t there. Israeli deal flow features companies raising $10-75 million seeds at $100M+ post-money valuations, a profile that doesn’t match the typical European seed playbook of $3-5M rounds in Berlin or Stockholm.
Meanwhile, foreign investors still accounted for 65.9% of fundraising activity in Q1 2026, though that share is gradually declining as local funds take a slightly larger role in early rounds.
What does this mean for founders and investors?
If you’re a founder raising right now, the data suggests a bifurcated market. Capital is available, especially if you’re in cyber or AI and can command a large round. But if you’re mid-stage, need to travel for business development, or are dealing with team absences due to reserve duty, you’re facing real headwinds that the headline numbers don’t capture.
If you’re an investor, the Innovation Authority data is a reminder that the operational reality on the ground is more complicated than funding tallies suggest. 89% of surveyed companies haven’t placed employees on furlough, and the sector is making a conscious effort to avoid sharp cuts. But 22% have already significantly delayed product launches or milestones, and 18% expect to downsize operations or personnel if the situation continues. The IIA itself notes that while the sector demonstrated impressive recovery after Iron Swords and Operation Rising Lion, this prolonged security situation may require different solutions.
The resilience is real and remarkable. But it shouldn’t be taken for granted.
For European VCs specifically, this may be a moment to reconsider the Israel gap. The companies emerging from this period battle-tested, capital-efficient, and looking for international partnerships could be exactly the kind of founders worth backing. But building that conviction requires showing up now, not after the next unicorn exit.
I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.
I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.