Between October 2023 and September 2024, the Israeli Ministry of Defense significantly increased its collaboration with startups and small businesses, placing orders worth NIS 601 million, a dramatic fivefold increase compared to the previous year. This growth follows the escalation of war in the region, which has prompted the ministry to bolster its technological capabilities in partnership with innovative companies. This information was released by the Defense Ministry Directorate and reported by Globes.
The surge in orders is notable not only for its scale but also for the nature of partnerships formed. For the first time, a systematic approach has been taken to integrate the capabilities of both startups and larger defence firms. Leading this initiative are Gen. (Res.) Eyal Zamir, Director General of the Ministry of Defense, and Brig. Gen. (Res.) Dr. Danny Gold, who will be participating in the upcoming Defense Technology Summit at Tel Aviv University, in collaboration with the Ministry of Defense's Research and Development Directorate (MAFAT).
By the end of September 2024, MAFAT had established relationships with 284 startups and small businesses, which included 200 direct partnerships and an additional 84 through external mechanisms. This marks an increase of 38 startups since January 2024. A particularly noteworthy detail is that during the third quarter of 2024, MAFAT secured deals worth NIS 134 million, underscoring a shift in focus towards smaller, innovative firms. In terms of contract value, it was found that the government-to-government (GTG) contracts are increasingly allocated to smaller companies, rather than solely to larger firms.
Data indicates that since the beginning of 2024, MAFAT has negotiated 13 contracts with startups and small businesses amounting to NIS 74.5 million, predominantly with entities based in the United States. The ministry regards these contracts as essential to furthering the Israel Defense Forces (IDF) technological advancements. A breakdown of transactions from January 2024 demonstrates that 37% of the deals were with pre-seed startups, while 25% were with seed-stage startups and 19% encompassed companies at the C-stage and beyond. When analysing the direct orders from MAFAT, the composition reveals that a larger portion, 64%, consists of companies past either the pre-seed or seed stages, with 16% having completed Series A funding.
The war has catalysed more than 20 startups to transition from development to production, including firms such as Third Eye, Regulus, Robotican, Smartshooter, and NextDim. Interestingly, throughout the conflict, 55% of external requests for technology were directed towards independent platforms operated by startups and small businesses, highlighting a reliance on their agile capabilities.
The Defence Ministry also supports early-stage startups through the INNOFENSE accelerator program, which has completed four cohorts with a total of 58 startups. These ventures span various fields, predominantly focusing on artificial intelligence, navigation and deep technology. According to reports, 58% of the participated projects have moved beyond the proof of concept stage, with five of these firms receiving contracts during the war.
Globally, the defence industry is increasingly leaning towards dual-use technologies that cater to both military and civilian applications. To facilitate this transition, the Ministry of Defense has signed framework agreements with three venture capital funds: AWZ, Chartered Group, and Dual Impact. Collectively, these funds have invested approximately NIS 264 million into 15 companies, five of which maintain direct relationships with MAFAT.
Another channel for fostering innovation is the Memad initiative, operating in conjunction with the Israel Innovation Authority, aimed at providing grants to companies developing dual-use technologies at the proof-of-concept stage. Out of the 73 startups receiving grants, 41 have engaged in applications and supply arrangements with MAFAT. The overall funding raised by these companies is estimated at NIS 1.3 billion, with Quantum Source alone acquiring NIS 273 million.
Colonel Nir Weingold, head of the IDF’s Planning and Economics Department, highlighted the operational advantages of smaller companies, noting that their nimbleness allows for expedited processes, contrasting with the slower bureaucratic structures of larger organisations. He expressed optimism regarding innovation trends, indicating that the upcoming conference would signify a significant progression in the realm of defence innovation in Israel, focusing on the intersection where technology meets battlefield applications and the role of investors in fostering such advancements.
Source: Noah Wire Services