2025 VC Survey“Startups in Israel have succeeded despite government actions, not because of them”
2025 VC Survey
“Startups in Israel have succeeded despite government actions, not because of them”
TLV Partners’ Shahar Tzafrir has joined CTech to share observations of the last year and hopes for the year ahead.
The Israeli high-tech sector has thrived largely because the local government has kept its distance, allowing a free-market environment to drive innovation and success,” explained Shahar Tzafrir. “Startups in Israel have succeeded despite government actions, not because of them. Given this dynamic, the most important thing the government can do is avoid interfering with the tech ecosystem.”
TLV Partners joined CTech for its 2025 VC Survey to discuss some of the ways Israeli high-tech may change over the next year. Importantly, the ecosystem has shows impressive resilience, despite the ongoing war and the government’s response to it. The fund outlined three challenges it should focus on that pose mid- to long-term threats to the sector's trajectory: stabilizing the economy, revitalizing education, and supporting infrastructure without interference.
“Regrettably, I have serious concerns about the current government’s ability—or intent—to address these challenges effectively,” added Tzafrir. “The best course of action may be to stay out of the way entirely, allowing the resilience and resourcefulness of Israeli entrepreneurs to continue driving the sector forward.”
You can read the entire interview below.
Fund ID
Name of fund/funds: TLV Partners
Total sum of the fund: Over $1 billion in assets under management
Partners: Eitan Bek, Rona Segev, Shahar Tzafrir, Adi Yarel Toledano, Yonatan Mandelbaum, Brian Sack
Notable/select portfolio companies (active): 70+ companies, including Aidoc, SilverFort, Buildots, Immunai, Aqua Security, Next Insurance, Unit, Oligo Security, Port, Qodo, Mesh Payments, Deepcure, Quantum Machines.
Notable exits: Run:ai (acquired by Nvidia), Granulate (acquired by Intel), Oribi (acquired by LinkedIn), Neosec (acquired by Akamai), Stoke (acquired by Fiverr), Laminar (acquired by Rubrik), SeaLights (acquired by Tricentis), Rookout (acquired by Dynatrace), Odo Security (acquired by Check Point), Puresec (acquired by Palo Alto), Skyline (JLL), Stoke (Fiverr), and Guesty (secondary transaction).
2024 is almost over. How can you summarize it in terms of the Israeli high-tech industry?
As 2024 draws to a close, it’s evident that this year was transformative for Israeli high-tech. It set a record for M&A activity and saw the emergence of an extraordinary wave of early-stage startups. At TLV Partners, we led 11 new seed investments this year—a sharp increase compared to our usual pace of six investments in 2023. This reflects the growing dynamism and optimism within the ecosystem, even in the face of significant challenges.
A major driver of this innovation surge was the aftermath of the October 7 2023 war. For those completing their military service in 2024, the conflict often sparked deep self-reflection, leading many to pursue meaningful ventures like founding startups. In some cases, their service was extended into 2024, delaying their entry into civilian life and coinciding with this startup boom. Reserve duty also played a unique role, offering potential founders the chance to disconnect from their pre-war professional lives, gain fresh perspectives, and forge new relationships with fellow reservists—many of whom later became their co-founders. This phenomenon underscores how resilience and creativity can flourish even in adversity.
Existing startups also showcased incredible adaptability in 2024. Despite the challenges of reserve duty and broader disruptions, many startups not only weathered the storm but achieved significant milestones. For example, within our portfolio, Silverfort and Flip both raised over $100 million in follow-on financing rounds. Numerous companies also reported increased sales, successfully adapting their strategies to shifting market demands and proving the robustness of the Israeli tech ecosystem.
Another key factor in sustaining momentum was the unwavering support of US funds. Instead of retreating during uncertain times, many American investors doubled down on their commitment to Israeli tech. They provided essential capital by backing existing portfolio companies and actively seeking new opportunities, demonstrating their confidence in the long-term potential of Israeli innovation. This increased engagement helped ensure stability and growth for startups in 2024.
Ultimately, 2024 reinforced the strength and resilience of Israel’s high-tech industry. In the face of unprecedented challenges, the ecosystem not only endured but thrived, laying the groundwork for even greater achievements in the years to come.
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?
The Israeli high-tech industry is deeply interconnected with the global ecosystem, so the challenges it faces are largely reflective of broader trends rather than being uniquely local. However, there are longer-term concerns that could influence the trajectory of Israeli innovation. The first is the economic strain caused by increased war spending, compounded by the government's negligent fiscal mismanagement, which threatens to weaken the overall business environment. The second is the ongoing decline in the quality of Israel’s education system, as evidenced by deteriorating rankings in key global measures—a trend that could erode the talent pipeline in the coming years.
While these factors do not pose a risk to 2025, they represent mid- to long-term challenges that require urgent attention. For now, the resilience and resourcefulness of Israeli entrepreneurs and employees in the high-tech sector remain the driving force of the ecosystem, allowing it to continue thriving despite external pressures.
How will new American leadership affect the global high-tech industry or economy? And where does this place Israel and its entrepreneurs?
I’m optimistic that the new American leadership will adopt a pro-business stance, focusing on reducing red tape, bureaucracy, and overregulation. This approach could act as a catalyst for global economic growth, positively impacting the high-tech industry and fostering innovation worldwide. In particular, we’ve seen how regulatory interference has slowed some M&A activity in recent years, creating uncertainty for companies and investors alike. A more business-friendly environment could reinvigorate the M&A landscape, providing essential liquidity and exit opportunities that fuel the startup ecosystem.
For Israel and its entrepreneurs, this shift would be especially welcome. The Israeli high-tech sector is deeply tied to the US through investment, collaboration, and market access. Pro-growth policies in America would likely encourage US funds to remain active in Israel and continue seeking opportunities here. This would further bolster the flow of capital into Israeli startups, providing the resources they need to scale and succeed globally.
What are the three most important things the Israeli government should do today to accelerate the high-tech engine in the coming year?
The Israeli high-tech sector has thrived largely because the local government has kept its distance, allowing a free-market environment to drive innovation and success. Startups in Israel have succeeded despite government actions, not because of them. Given this dynamic, the most important thing the government can do is avoid interfering with the tech ecosystem. Instead, their focus should be on tackling broader systemic issues that pose mid- to long-term threats to the sector's trajectory:
- Stabilize the Economy: Address the economic challenges stemming from war spending and negligent fiscal mismanagement. A stable economy is critical for maintaining investor confidence and ensuring that entrepreneurs have a predictable environment in which to operate.
- Revitalize Education: Reverse the decline in education by investing in STEM programs, teacher training, and curriculum reform. Without a steady pipeline of highly skilled talent, Israel’s competitive edge in tech is at risk.
- Support Infrastructure, Not Interference: If involvement in high-tech is unavoidable, it should focus on enhancing digital and physical infrastructure without adding unnecessary bureaucracy or regulations.
Regrettably, I have serious concerns about the current government’s ability—or intent—to address these challenges effectively. The best course of action may be to stay out of the way entirely, allowing the resilience and resourcefulness of Israeli entrepreneurs to continue driving the sector forward.
Are there new sectors you see as relevant? Are there any fields you anticipate will weaken significantly in the coming year?
Defense-tech, currently the buzzword of Israeli high-tech, feels overhyped to me. Historically, across all sectors, no more than 3-4 truly great companies emerge each year—sometimes fewer. While the October 7 war has understandably driven founders and funds toward this domain out of moral commitment, I don’t see it as a space that will consistently produce breakthrough companies year after year.
In contrast, I anticipate continued breakthroughs in AI across various sectors, particularly in what I call “vertical AI solutions.” These are applications of AI to specific industries such as medicine, healthcare, biotech, construction, and developer tools to name but a few areas of the many benefiting from it. Recent advancements in AI have effectively given developers “superpowers,” enabling them to create software solutions that were previously unfeasible. This shift is empowering innovation across domains where AI is solving deeply complex problems.
At TLV Partners, we’re a “generalist” fund, meaning we invest across a wide range of sectors, though we focus primarily on enterprise software. We also cover healthtech (e.g., Aidoc), biotech (e.g., Immunai, Deepcure, Canopy), and emerging fields like quantum computing—domains considered exotic when we first started investing in them years ago. Ultimately, our investments are founder-driven, guided by the ambition and vision of entrepreneurs we meet. This approach allows us to adapt to new opportunities as they arise and support transformative technologies across diverse industries.
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?
It has become fashionable to suggest that Israel is falling behind in the global AI revolution, but I strongly disagree. Before the recent surge in large language models (LLMs)—pioneered by OpenAI and advanced by companies like Meta (notably with open-source contributions), Anthropic, and Google—the AI landscape was largely dominated by vision AI. In this domain, Israel has long been a leader, thanks to expertise rooted in the IDF, academia, and a thriving startup ecosystem. Companies like Aidoc in healthtech and Buildots in construction exemplify Israel’s strength in leveraging vision-based AI to solve real-world problems.
When it comes to LLMs, building foundational models now requires billions of dollars in infrastructure, making it a space where Israel cannot realistically compete broadly. However, there are promising opportunities in narrow-domain foundational models, as demonstrated by Aidoc’s health-specific AI foundational models initiatives. Attempting to go head-to-head with global giants in general-purpose LLMs would be impractical for Israeli startups, given the costs and unclear monetization paths for many foundational-model projects.
The real opportunity for Israeli tech lies in vertical AI applications—using AI breakthroughs to tackle specific business challenges that were previously too expensive or complex to solve with previous software development methods —and in tools that enable the AI revolution. Startups like Run:ai, which focuses on orchestration tools for AI infrastructure, exemplify this approach. Their recognition as a leader in the field and subsequent acquisition process with Nvidia underscores the strength of Israeli companies in building critical tools and enablers for the global AI ecosystem.
As for government involvement, I remain skeptical. In the current political climate, there’s a significant risk that government funding could be misallocated or politicized. The continued success of Israel’s high-tech industry lies in its entrepreneurial culture, global connections, and free-market dynamics. Far from falling behind, Israel is carving out a unique and valuable niche in the rapidly evolving AI landscape.
Could the global IPO drought end in the coming year?
We certainly hope so, but as early-stage investors, we don't claim expertise in public markets. That said, the macro trends appear encouraging. Improved investor confidence, and the strong performance of select tech companies in public markets could create a more favorable environment for IPOs. If this momentum continues, it could reignite the IPO pipeline, providing valuable liquidity to late-stage startups and fueling the broader tech ecosystem. However, it's too early to predict with certainty and not a subject in which we claim any expertise.
From an investor's perspective: will the coming year be better for early-stage startups or more mature companies?
The coming year looks very promising for seed and Series A startups in Israel. Both local and international funds have significant capital and a strong appetite for early-stage investments, making it an excellent time for founders at these stages to raise funds and build momentum.
For more mature companies, we are cautiously optimistic. The challenging "two years of savings" period has forced many of these companies to become leaner, more focused, and efficient, which positions them better for funding opportunities. While the market isn’t back to pre-downturn levels, the discipline and adaptability companies have developed during this time will likely translate into stronger fundamentals and renewed investor interest.
In short, while early-stage startups will see robust enthusiasm, more mature companies are also entering a healthier and more balanced landscape for growth and financing.
Did you raise fund money in 2024 for an existing fund or a new one? What are your expectations regarding this matter for 2025?
In the second quarter of 2024, we officially launched our fifth fund, TLV Partners V, a $250M fund raised in mid-2023. This seamless transition allowed us to begin investing immediately after concluding the deployment of TLV Partners IV. Since launching Fund V, we’ve already made seven exciting new investments from it, reflecting the robust opportunities we’re seeing in the Israeli startup ecosystem.
Looking ahead to 2025, we don’t anticipate raising a new fund, as TLV Partners V will remain our primary vehicle for investments for the next 2-3 years. Based on our current trajectory, we expect to begin planning our next fundraise around mid-2027. This approach ensures we remain focused on backing exceptional founders and maximizing the potential of our existing portfolio.
How many investments did you make in 2024, and how does it compare to previous years?
2024 was an exceptionally active year for us, driven by the trends we’ve highlighted earlier. We led 11 new seed investments, often at or even before the incorporation of the startups. This marks a significant increase compared to our usual pace in previous years, reflecting both the surge in entrepreneurial activity and our confidence in the Israeli high-tech ecosystem.
In addition to these new investments, our portfolio companies collectively raised over $400 million in follow-on investment rounds, led by both global and local funds, with our active participation. This robust activity underscores the strength of our portfolio and the continued interest from leading investors in the companies we’ve backed.
Provide an example of an intriguing investment you made in 2024. What sets this company apart, or what is distinctive about its sector?
It’s tough to pick just one from the 11 new seed investments we led in 2024, but Converge Bio stands out as an extraordinary example. We met the two founders just weeks before the October 7 war, and both were immediately drafted to reserve duty, serving in combat units. Despite the immense challenges, they continued refining their idea during any downtime, gathering market feedback, and keeping us updated—all while serving on the front lines. Their determination and resilience were remarkable, and we led their seed round early in 2024 during a brief break from their reserve duty. The company was officially incorporated shortly after.
Converge Bio is revolutionizing biology by applying large language models to treat biological data as a "language." This paradigm-shifting approach not only enables groundbreaking predictions in drug discovery but also provides explainable insights that scientists can trust and act on. Their ability to integrate generative AI into the fabric of biology is truly transformative, bridging the gap between cutting-edge technology and practical application in life sciences.
What truly sets Converge Bio apart is its capacity to reshape how we understand and manipulate biology—not just by advancing drug discovery but by fundamentally changing the way scientists interact with biological data. Its platform is a leap forward in making AI-generated biological insights both actionable and transparent.
As a testament to the founders’ incredible spirit, they remain active in reserve duty. Just recently, one of them sent us a photo of a makeshift workstation he set up in a combat zone to keep progressing their product while serving the country. Their combination of vision, resilience, and dedication makes Converge Bio not just an exciting investment, but a profoundly inspiring one.
Two notable companies that you think will thrive in 2025. These can be from your portfolio or not.
Company Name: Buildots
Sector + description of the product/service: AI for construction
Investment amount + total: The company has raised more than $120M
Founding Year: 2018. TLV Partners led the seed round and co-led and participated in all subsequent rounds.
Reasoning why this is their year: Buildots is an Israeli construction technology company that leverages artificial intelligence and computer vision to revolutionize construction sites by transforming them into fully digitized environments. Their platform provides AI-powered progress tracking, consolidating all site data into a single source of truth. With predictive analytics, delay forecasting, and real-time actionable insights, Buildots enables project managers and owners to optimize outcomes and streamline operational efficiency by automating manual processes and delivering tailored reports. Their cutting-edge approach has garnered industry recognition, positioning them as a leader in construction technology.
2025 is set to be a defining year for Buildots, as they solidify their role as a trusted partner for some of the world's largest construction companies. By embedding their technology deeply into clients' operations, Buildots is driving dramatic cost reductions and delivering unprecedented improvements in project timelines. Their advanced AI and computer vision technology, powered by years of real-world data collected from massive construction sites, creates a competitive edge that no other company can replicate. This immense dataset forms a robust moat around their business, making their platform uniquely accurate and effective.
With the construction industry increasingly demanding efficiency and digitization, Buildots stands at the forefront of this transformation. Their unique combination of innovative technology, proven results, and deep integration into client operations positions them to lead the sector into a new era of productivity, making 2025 a milestone year for the company and its impact on the global construction landscape.
Company Name: Qodo
Sector + description of the product/service: Qodo is a quality-first generative AI coding platform that helps developers write, test, and review code within IDE and Git.
Investment amount + total: $50M
Founding Year: 2022. TLV Partners co-led the seed round and participated in the A round.
Reasoning why this is their year: As AI takes center stage in software development, maintaining code quality is no longer optional—it’s essential. Without rigorous validation, the speed and efficiency promised by AI-generated code can be quickly undermined by unforeseen complexities and costly setbacks later in the development cycle.
The future of software development isn’t coming—it’s already here. Companies worldwide are increasingly leveraging AI to build their software. Just recently, Google CEO Sundar Pichai revealed that 25% of Google’s internal code is now AI-generated—a staggering statistic that marks only the beginning of this transformation. Qodo stands ready to lead this new era with its commitment ensuring the highest standards of code quality and integrity.
Qodo is a quality-first generative AI coding platform, offering busy developers tools for writing, testing, and reviewing code. Using Qodo, developers can leverage the power of AI directly within their IDE and Git, ensuring that generated code is accurate and high quality. Qodo’s platform focuses on code integrity, with features like automated code reviews, contextual code suggestions, and comprehensive test generation. By integrating seamlessly into existing workflows, Qodo empowers developers to produce robust, reliable software efficiently, helping teams maintain high standards of code quality and integrity throughout the development lifecycle.
