Israeli startups raised approximately $8.6 billion during the first half of 2026, a 45% increase from roughly $6 billion during the same period last year, according to a new report published by Poalim Tech and Dealigence.

The report found that while overall investment volumes rose significantly, the number of funding rounds declined by about 35%, suggesting that a larger share of available capital is being directed toward a smaller group of companies.

The findings come as Israel's technology sector continues to operate amid ongoing security challenges and economic uncertainty stemming from more than two years of conflict.

Cybersecurity remained one of the strongest-performing sectors, attracting a substantial portion of overall investment activity. According to the report, capital invested in cybersecurity companies more than doubled compared to the first half of 2025.

The sector's resilience was particularly evident in March, when funding volumes remained stable at approximately $580 million despite Operation Roaring Lion and the escalation of tensions with Iran.

The report also points to a growing concentration of investment around experienced entrepreneurs. The share of funding rounds raised by serial founders increased from 34% in 2025 to 39% in the first half of 2026, reflecting investor preference for founders with established track records.

A similar trend emerged in the mergers and acquisitions market. The number of M&A transactions fell by approximately 16%, from 100 deals in the first half of 2025 to 84 deals during the same period this year. However, the average deal value rose by around 10%, excluding the Wiz and CyberArk transactions, suggesting that buyers are increasingly targeting larger and more mature companies.

Total M&A transaction volume during the first half of 2026 reached approximately $10.7 billion.

The report also highlighted diverging trends in the labor market. While multinational technology companies have continued implementing layoffs and cost-cutting measures amid uncertainty, artificial intelligence-driven efficiency initiatives, and the weakening US dollar, Israeli early- and mid-stage startups have largely maintained workforce stability.

Employment among these startups grew by approximately 2% during the first half of 2026. According to the report, younger companies often begin operations with leaner organizational structures, leaving less room for additional workforce reductions.

Poalim Tech warned that operating conditions are becoming increasingly challenging for early-stage and growth-stage startups. The report cited rising competition for investment capital, greater investor selectivity, increasing operating expenses, and currency volatility as factors that could shorten the financial runway of some companies.

As a result, younger companies may be required to raise capital earlier than anticipated, maintain larger cash reserves, and exercise stricter expense controls to support continued growth and business continuity.

At the same time, the report noted the emergence of a growing number of AI-native startups operating with exceptionally small teams, in some cases consisting of a single founder. These companies are often able to make substantial progress without raising significant amounts of early-stage funding, a trend the report describes as a potential new growth engine for Israel's technology sector.

"One of the most interesting findings in the report is that the AI revolution has not changed the fact that young companies still need talented people in order to grow," said Adam Lazovski, co-founder and CEO of Dealigence.

"While some large technology companies are focused on streamlining operations and reducing headcount, Israeli startups continue to hire. This is not surprising, as most of them operate from day one with small, highly focused teams. Experience shows that it is often during periods like these that the most successful companies are built, companies that know how to do more with less, develop outstanding products, and think about their business model from the earliest stages."

Written in collaboration with Bank HaPoalim