2025 VC Survey“We're on the precipice of a quantum revolution, and Israeli entrepreneurs are well-positioned to play a significant role”
2025 VC Survey
“We're on the precipice of a quantum revolution, and Israeli entrepreneurs are well-positioned to play a significant role”
Key1 Capital Co-Founder & Managing Partner, Amit Pilowsky, joined CTech for its 2025 VC Survey.
“We believe that the defensetech sector will play an increasingly significant role in our tech ecosystem,” said Amit Pilowsky, Co-Founder & Managing Partner at Key1 Capital. “Another sector that goes without saying is AI, but Israeli entrepreneurs and investors will need to think strategically about how to position themselves as global leaders that leverage the strength of the local market while recognizing our inherent shortcomings.”
Pilowsky joined CTech for its 2025 VC Survey to share insights on how he sees Israeli tech in the next year. With an emphasis on different sectors, he outlined Israel’s role in the global tech game.
“Quantum computing is also where Israel has a real chance to stand out and take the lead globally. We're on the precipice of a quantum revolution, and Israeli entrepreneurs are well-positioned to play a significant role here,” he added.
You can read the entire interview below.
Fund ID
Name of fund: Key1 Capital
Total sum of the fund: $300m
Partners: Amit Pilowsky, Sarel Eldor, Danny Akerman
Notable/select portfolio companies (active): FundGuard, Weka.io, Cheq, Chunk Foods
Notable exits: SuperPlay
2024 is over. How can you summarize it in terms of the Israeli high-tech industry?
To me, 2024 marks the year of delivery. Despite challenges (and there were many), it became abundantly clear that Israeli companies continue to execute incredibly well.
It translated to very strong performance across the board and also resulted in healthy deal activity from both Israeli and international investors, as well as a significant increase in M&A activity, with record-breaking deals highlighting the ecosystem's resilience. The surge in mergers and acquisitions reflects not only the confidence of international buyers but also the maturity of Israeli tech companies. The ecosystem truly embodied the mantra: “We deliver, no matter what.”
Looking ahead to 2025 - what challenges and opportunities await the Israeli high-tech sector in the coming year, and how are you, as investors, preparing for them?
It would be remiss not to mention the huge opportunities presented by generative AI, which enabled companies across all sectors to accelerate their pace of innovation, growth, and efficiency. Israeli entrepreneurs are well-versed in adapting and embracing change, and the AI revolution plays to these strengths.
Defensetech and aerospace are other areas where Israel is poised to shine, in a way closing the gap between the innovation existing in the IDF and the defense establishment, which is second to none, with the defensetech ecosystem that is growing at a rapid pace. Much of this innovation stems from reservists who experience challenges during their duty and bring back new ideas. To support the inevitable rise in innovation in the defensetech and aerospace sectors we established Ace Capital Partners, our investment arm dedicated to supporting early-stage startups primarily in Israel in these sectors. Our partners, Major General (Ret.) Amikam Norkin, former Israeli Air Force Commander, and Brigadier General (Ret.) Shimon Tsentsiper in creating Ace, which enables us to apply the expertise, depth, and experience to deliver the right support and advance visionary founders in the space, both in the early stage through Ace, as well as in the growth stage through Key1.
How are you preparing for geopolitical uncertainty?
In times of uncertainty, the critical approach is to proactively identify the risks, and find ways to minimize those, rather than try to avoid them. Avoidance is not a strategy and will ultimately backfire.
What does this mean in practice? Consider a portfolio company whose business relies heavily on the US economy and consumer spending in that market. Understanding that the US is possibly entering a period of tariff wars and potential radical cost-cutting on the consumer side as well as the corporate side, it may make sense for the business to start hedging against market volatility and diversify its business by serving other markets, or segments less exposed to economic headwinds to reduce over-reliance on a specific vertical(s) of the US market. This is just one example.
Ultimately, we encourage each business to thoroughly assess its individual risks and proactively find ways to minimize the key ones as much as possible, and define safeguards around those remaining risks you are willing to take. This approach ensures companies are better prepared to navigate uncertainties and maintain growth trajectories even in challenging economic conditions.
How will new American leadership affect the global high-tech industry or economy? And where does this place Israel and its entrepreneurs?
There is a lot of talk about policies that were mentioned during the presidential campaign, but first and foremost, we need to see which of these policies will actually come into play.
On one hand, the new US leadership seems pro-tech in several ways: from reducing regulations and antitrust measures to enabling faster company growth and acquisitions. This could accelerate the tech flywheel - where successful exits lead to reinvestment, fuelling more startups and more innovations. This clear embrace of technology will equally benefit Israeli entrepreneurs. Moreover, bringing a number of tech entrepreneurs and tech leaders into decision-making government roles will inherently advantage the high-tech industry.
On the other hand, global tech may face short-term challenges due to increased cost-cutting and potential program slashes.
Any change brings uncertainty, so while the medium-term prospects seem relatively positive, the immediate outlook is more uncertain.
What are the three most important things the Israeli government should do today to accelerate the high-tech engine in the coming year?
First and foremost, there needs to be a strong re-focus on education. If we don't start re-investing in education today, we won't have a thriving high-tech ecosystem in 10 or 20 years from now. In 2015, Israel ranked 16th in mathematics in the TIMSS assessment but dropped to 23rd place in the most recent assessment, just slightly above the international average. This significant drop of seven places in mathematics rankings over a span of about less than a decade is only one example of how our education is suffering and is highly concerning.
We are also entering a period where the government will need to maximize revenue, but there should be recognition that 'squeezing the tech lemon' too hard with taxes and elevating more regulations will leave no lemons to squeeze. If the government increases taxes for GPs at funds, they won't be incentivized to launch new funds. If they over-tax the LPs, they will no longer invest in Israeli VCs, and companies will look to incorporate outside of Israel. The government should focus on increasing its tax sources by adding more sectors to the working force and at the same time reduce those specific sector reliance on government funding.
Lastly, the government should focus on increasing inclusion in the high-tech sector, specifically targeting orthodox Jews and Arabs. Boosting such efforts will expand opportunities for entrepreneurs and enable corporates to grow faster and more diversely, driving innovation. It will also reduce the economic burden on the rest of the population, and minimize the number of those leaving the country to live abroad.
Are there new sectors you see as relevant? Are there any fields you anticipate will weaken significantly in the coming year?
As mentioned, we believe that the defensetech sector will play an increasingly significant role in our tech ecosystem. Another sector that goes without saying is AI, but Israeli entrepreneurs and investors will need to think strategically about how to position themselves as global leaders that leverage the strength of the local market (e.g. tech, innovation, creativity) while recognizing our inherent shortcomings (e.g. limited capital base vs. the US for example).
Quantum computing is also where Israel has a real chance to stand out and take the lead globally. We're on the precipice of a quantum revolution, and Israeli entrepreneurs are well-positioned to play a significant role here. Just to give an example, the establishment of the Israeli Quantum Computing Center (IQCC), among other activities that we see in the market, could help Israel emerge as a quantum powerhouse. The IQCC, located at Tel Aviv University, is the first in the world to house co-located quantum computers of different qubit modalities. This state-of-the-art facility, combined with Israel's quantum startup ecosystem, positions the country at the forefront of this transformative technology.
Is Israel missing out on the AI revolution in the global arms race? If not, what should the local industry focus on to join the global race?
Firstly, from the perspective of investors, it’s clear we are not missing the AI revolution. Some of Israel’s largest historical successes in tech were related to AI. For example, Mobileye who led the autonomous driving industry, and Mellanox who pioneered the datacenter interconnect technology and today is a centerpiece in NVIDIA’s global success, or Habana which was acquired by Intel, just to name a few. We continue to see Israeli entrepreneurs in every company we analyze having some AI elements and strong AI foundations in their tech stack. Israeli entrepreneurs have been quick to adopt ML and AI into their work processes and business foundations.
That said, it is also clear that Israel is not yet thought of as a leader in AI innovation like the US, China, or France, and we should be looking at what is the path to get us there. One key aspect is an increase in investments and focus from a national standpoint, as some aspects of AI require nation-level resources and investments.
Could the global IPO drought end in the coming year?
The reality is that the IPO market is already open. The apparent drought stems not from a lack of investor appetite, but from a shortage of company supply. This isn't due to a lack of quality companies; many great companies could definitely go public in today’s market if they wished to. However, in many cases, previous funding rounds during 2021-2022 were at valuations higher than what the current IPO market would offer. As companies start growing into their valuations and investors reach a point where they will feel more pressure to return capital to their LPs (who are actually the most affected by the IPO drought), I believe the IPO 'drought' will come to an end, and that may well be in 2025. It is likely that a few leading Israeli companies will IPO in the second half of next year.
From an investor's perspective: will the coming year be better for early-stage startups or more mature companies?
From an investor's perspective, the coming year will likely be better for investors in the growth stage. This is primarily due to the dynamics of supply and demand equilibrium between investors and entrepreneurs: on one hand, somewhat less available capital, and on the other hand, the supply of companies seeking funding is increasing, with many having raised large rounds in 2021/2022 now needing to return to the market.
For early-stage startups, there's a large supply of capital both locally and globally. Innovation continues to take place, resulting in a significant number of new companies. However, as is often the case, a handful of presumed “winners” and “favored industries” (namely cyber and AI), will likely attract a disproportionate amount of attention and capital. The rest will have to work harder to raise funds.
Did you raise fund money in 2024 for an existing fund or a new one? What are your expectations regarding this matter for 2025?
We have significant dry powder to deploy. Therefore, we didn't raise in 2024 and likely won’t return to market in the coming 3-4 quarters at least.
How many investments did you make in 2024, and how does it compare to previous years?
We made one meaningful investment in 2024, our largest to date when we led FundGuard’s $100m round with a $35m investment. Furthermore, we participated in rounds of two of our portfolio companies, with more than our pro-rata share, given our conviction in these companies and desire to further support them. This is an increase from the 2023 deployment.
Two notable companies that you think will thrive in 2025.
Company Name: Weka
Sector + description of the product/service: Weka delivers a data platform purpose-built for AI and technical computing workloads, with a software-defined storage architecture that eliminates data bottlenecks and maximizes GPU utilization. Their solution accelerates AI/ML workflows through parallel data processing and seamless scalability, enabling enterprises to optimize their infrastructure investments across cloud, on-premise, and hybrid environments
Investment amount + total: $400m
Founding Year: 2013
Reasoning why this is their year: Weka is strategically positioned to capture significant value in 2025 as the AI infrastructure market reaches an inflection point. Their data platform architecture, specifically designed for AI and GPU-intensive workloads, addresses the critical bottleneck in enterprise AI adoption: the data pipeline.
Company Name: April
Sector + description of the product/service: April specializes in embedded tax intelligence solutions, providing API-first tax preparation and planning tools that integrate seamlessly with financial platforms. Their B2B2C model transforms tax management from an annual event into an ongoing financial wellness service
Investment amount + total: $40m
Founding Year: 2021
Reasoning why this is their year: April is uniquely positioned to capture value in 2025 as the tax preparation market undergoes a fundamental shift from DIY to assisted professional services. Rather than competing directly with incumbents like TurboTax in the consumer market, April has innovated with an "embedded intelligence" model that transforms tax preparation from an annual event into an integrated part of everyday financial services. Their timing aligns perfectly with financial institutions' aggressive expansion into embedded finance, as banks and fintechs seek to provide comprehensive financial services within their platforms.
