Israel perfectly positioned to spearhead a defense tech renaissance
Israel perfectly positioned to spearhead a defense tech renaissance
Israeli startups should prioritize defense tech, with TLV Partners' Yonatan Mandelbaum coining it "Patriotism as a Service." Aligned with Andreessen Horowitz's "American Dynamism," the call for innovation in defense tech is underscored by the evolving global landscape and accessible weaponry, emphasizing AI and a "Defense First" approach
"In the last two months, it has become even clearer to us the need for a new generation of startups that will develop products and services for the defense of the State of Israel. I'm referring to a new category of companies that will focus on developing software or hardware solutions, mainly for government and military customers. While some of these companies have traditionally fallen under the category of Defense Tech, today, I propose to name this field 'Patriotism as a Service”, says Yonatan Mandelbaum, a Partner at the venture capital fund TLV Partners.
“The world is changing”, says Mandelbaum in an interview with CTech, “current conflicts in Israel and Ukraine have demonstrated that modern warfare doesn’t only take place on the battlefield, but rather across multiple fronts – including the digital world that we are all so entrenched in. Defense as a category encompasses deterrence and resilience as well: specifically, the ability to ensure that nations have the capabilities to withstand threats across various domains.”
According to Mandelbaum Israel’s tech ecosystem and defense technology have, for the most part, coexisted side by side, but never quite interacted. “This is surprising because the root of Israel’s tech prowess can be attributed to the military experience that the majority of its founders have. Most Israeli founders spend years serving in the Military Intelligence, Air Force, Armed Forces, Navy, National Intelligence or other units, prior to beginning their entrepreneurial journey.”
Not only Israel faces the problematic connection between military innovations and defense technologies and between the social values and the economic values embodied in the field. While Mandelbaum chooses to call it “Patriotism as a Service”, the giant American venture capital fund Andreessen Horowitz calls the field “American Dynamism”.
In a lecture at Shift’s Defense Ventures Summit in Washington in November, Katherine Boyle, a venture capitalist and general partner at Andreessen Horowitz, said: “We believe a strong America means a strong world. A safer world. A more civilized world, which is a term we should use more. And that technology is the backbone of maintaining this order and civilization, and always will be. We called this movement American Dynamism.”
According to Boyle, American Dynamism is presented as a movement that embraces growth, movement, momentum, and opportunity in the context of technological supremacy and innovation. It reflects a commitment to the values upon which the United States was founded, emphasizing the insatiable spirit of dynamism and the relentless pursuit of progress and prosperity.
In relation to defense technologies and military technologies, Boyle refers to American Dynamism as a crucial factor for ensuring national defense and security. Maintaining dynamism in technology, particularly in the defense sector, is essential for safeguarding the country's interests and contributing to global stability. Boyle calls for a focus on innovation, rejecting fear of technology, and advocating for a culture that supports the development of breakthrough ideas in defense.
American Dynamism, in the context of defense technologies, implies a forward-looking and proactive approach to technological innovation. It is portrayed as a key element in facing contemporary challenges, such as geopolitical threats, and ensuring that the United States remains at the forefront of technological advancements in the defense and military sectors. Boyle implies that a commitment to dynamism in technology is synonymous with a commitment to a strong, secure, and innovative America.
But dynamism or patriotism are not the exclusive property of Israel or the United States. Technological changes, alongside social and nationalistic movements, are taking place in many centers of the world simultaneously in recent years. In a world experiencing rapid digitization, plummeting tech costs, and the alarming accessibility of strategic weaponry even to militant groups, the size of an army no longer guarantees power or victory. We've witnessed the mighty Russian army falter against the tactical prowess of Ukrainian forces. Similarly, Israel's automated border defenses with Gaza crumbled in a single morning on October 7th. Furthermore, the relatively small Houthi army in Yemen has managed to threaten global maritime commerce with inexpensive, highly accurate long-range missiles and suicide drones.
This reality, coupled with the rising tide of right-wing nationalist movements in many Western nations, is transforming the landscape of territorial, ideological, and religious conflicts across the globe. While nations are increasingly turning inward (a trend that actually began during the COVID-19 pandemic in the early 2020s), new alliances and global resistance axes are forming around non-territorial and ideological interests. At the heart of this shift lies the growing militarization fueled by technology.
We've moved beyond the Cold War-era threat of nuclear cruise missiles wielded by the United States and Russia in a precarious duel. Today, we see powerful Russia leveraging Iranian technology in the form of precision-guided drones to eliminate the nimble Ukrainian army. Similarly, terrorist organizations like Hezbollah in southern Lebanon and Hamas in the Gaza Strip are wreaking havoc on Israel's sophisticated and powerful defense systems. They achieve this through the deployment of hundreds of drones, some costing a mere $100 and readily available on platforms like AliExpress. Notably, these organizations planned the entire operation that resulted in the barbaric massacre of 1,400 Israeli citizens through digital communication channels developed in North Korea. These channels remained undetected and inaccessible to Israeli intelligence, renowned for its technological prowess.
The battlefield of 2023 bears no resemblance to past war scenarios. The readily available and affordable technology provides a significant advantage to the side that can effectively utilize it, regardless of size or budget. While this strategy may have been labeled "terrorism" in the past, it now represents a far more evolved phenomenon than a small group of individuals wielding local terror tactics to advance their agenda. When a Yemeni militant group manages to cripple a wealthy and organized nation like Saudi Arabia, it transcends the traditional definition of terrorism. Similarly, when a terrorist organization like Hezbollah can draw two American aircraft carriers, a nuclear submarine, and a fully equipped navy into the Mediterranean, it signifies a paradigm shift beyond our previous understanding of terrorism.
Mandelbaum points out that according to Pitchbook, defense tech investment and acquisitions were robust from 2016 to 2022—$135.3 billion was invested and 71% of VC exits were acquisitions. Some examples of companies in this new wave of defense tech include Vannevar, Primer, Accrete and Rebellion Defense. “But this increase in appetite for defense tech has yet to truly reach the shores of the Mediterranean. We believe that needs to change,” he says.
“At TLV Partners, we began our journey of looking into defense tech about a year ago,” he says. “October 7th has revealed that we cannot remain on the sidelines when it comes to the protection of our beloved country and Western values of liberty and freedom. The fact of the matter is that a new path for being a patriot and a tech founder has emerged: building a defense tech company. We have made one investment so far in an incredible company called Airis Labs and are continuing to learn as much as we can about the industry.”
Mandelbaum highlights some elements the Israeli entrepreneurs can rely on when developing the sector, among them some unique to the local ecosystem. “Israelis possess unique advantages for defense sector innovation. Their military backgrounds provide valuable perspective, while their expertise in cybersecurity, computer vision, embedded software, and signal processing, fuel technological breakthroughs.
“We live in a changing world, and current events in Israel and Ukraine illustrate that modern warfare transcends the battlefield, encompassing the digital world we inhabit. Defense now encompasses deterrence and resilience, ensuring nations possess the capabilities to withstand threats across various domains.”
Another element is that Israel has a strong local market. Unlike other industries, the Israeli defense sector boasts a vibrant local market with 5-10 relevant agencies and organizations eager to serve as early adopters. These agencies' international standing makes securing their trust an invaluable asset for opening doors in the U.S. and Europe.
Behind patriotism as a service, he explains, is the need of Israel and its allies for security and defense. Due diligence and strict adherence to ethical principles are paramount. Israeli defense technology must never fall into the hands of adversaries or those seeking to harm Western society. Clear sales and go-to-market policies are crucial to uphold this commitment.
Mandelbaum also refers to the crucial role of Gen-AI's by leveraging the leaps in AI capabilities as key to the success of newly founded defense-focused startups.
He also emphasizes the Defense First principle: The popular "dual-use" approach, catering to a broad range of industries including governments, is no longer sufficient. He believes a dedicated "defense first" strategy is essential for building impactful companies in this domain.
Another point that is important to consider when cultivating the sector is mitigating risk. “While entering the defense sector and securing government contracts poses challenges, mitigating factors exist. First, government contracts are substantial and long-lasting, yielding significant rewards. Second, programs like Palantir's FedStart facilitate smoother entry for software-based companies,” concludes Mandelbaum.
First published: 09:26, 14.12.23
