2025 VC SurveyIsrael has shown “gravity-defying” resilience during war-time, says Square Peg
2025 VC Survey
Israel has shown “gravity-defying” resilience during war-time, says Square Peg
Coming off a difficult year of war and conflict, Yonatan Sela shares insights for CTech’s 2025 VC Survey where he is confident Israeli high-tech will remain strong despite its challenges.
“2024 has been an extremely challenging year for Israel, but given that context, the Israeli high-tech industry has shown incredible resilience, almost gravity-defying considering the difficult circumstances in the country,” said Yonatan Sela, Partner at Square Peg. “Startup funding grew compared to 2023 and M&A activity nearly doubled, outpacing even global markets. Founders demonstrated incredible commitment and focus.”
Sela joined CTech to share insights for its 2025 VC Survey, which invites prominent investors to discuss topics and trends expected in the year ahead. Coming off a difficult year of war and conflict, he is confident Israeli high-tech will remain strong despite its challenges.
“I expect the tech sector to continue thriving; a potential domestic economic downturn will likely impact domestic-facing sectors with much greater severity relative to the export-focused tech sector,” he added.
Fund ID
Name of fund/funds: Square Peg
Total sum of the fund: ~$3bn, we’re investing out of a $550m global fund (approximately 33% allocated to Israel)
Partners: Yonatan Sela, Philippe Schwartz. The global founders of Square Peg include Tony Holt and Paul Bassat (co-founder of $6bn HR internet company Seek)
Notable/select portfolio companies (active):
Outside of Israel: Canva, Stripe, Airwallex
In Israel: Aidoc, Exodigo, Vi, Tomorrow.io, Nimble, Voyantis
Notable exits in Israel: Fiverr (IPO), Deci.ai (acquired by Nvidia), PureSec (acquired by Palo Alto)
2024 is over. How can you summarize it in terms of the Israeli high-tech industry?
2024 has been an extremely challenging year for Israel, but given that context, the Israeli high-tech industry has shown incredible resilience, almost gravity-defying considering the difficult circumstances in the country. Startup funding grew compared to 2023 and M&A activity nearly doubled, outpacing even global markets. Founders demonstrated incredible commitment and focus. Overall the Square Peg portfolio has continued to perform well, with many companies raising significant up-rounds. The M&A and investment activity we saw this year represent a strong vote of trust in the future of Israel's ecosystem.
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 biggest challenge facing Israeli tech is the continuation of the war deep into 2025. War inflicts unimaginable pain everywhere: casualties, hostages, people losing their homes, and more. It also burdens Israel’s workforce (tech sector employees comprise 20% of active reservists), deepens a hole in the fiscal budget, damages Israel’s global brand, and adds friction to conducting business.
Domestically in Israel we are likely entering a tough economic environment, following this prolonged and ongoing war. However, I expect the tech sector to continue thriving; a potential domestic economic downturn will likely impact domestic-facing sectors with much greater severity relative to the export-focused tech sector.
Having said that, we strongly believe in the long-term opportunity set in Israel and the potential for exceptional Israeli founders to build generational businesses. Our investment strategy has not changed - to identify the best early-stage founders from our corners of the world, and help them make it big in the US and globally. We are particularly excited about founders building businesses in the areas of AI, SaaS, and Fintech. Most of our recent investments in Israel have been into AI companies, and we expect that trend to continue as Israeli founders find opportunities to leverage the latest in AI in unique contexts. We also see the potential for increased value creation in Israel in Cyber, where Israel is already a global leader, and Defensetech, which is experiencing multiple tailwinds in the current geopolitical environment.
How will new American leadership affect the global high-tech industry or economy? And where does this place Israel and its entrepreneurs?
Global financial markets would suggest that Trump's victory will be good for the global economy, including the high-tech industry. Trump is taking Silicon Valley's top leaders into Washington (or Florida…), and it is reasonable to believe that this administration's deregulation agenda could create opportunities across industries such as energy, transportation, defense and crypto, in addition to boosting AI. This creates a tailwind for startups exposed to those industries, particularly Israeli startups given the US is commonly their primary target market.
In addition, most players in the region believe that Trump’s victory will contribute to a meaningful reduction in the Iranian threat (a continuation of what we’ve seen in recent months, even before Trump). This would remove one of Israel’s biggest risks, and likely increase the global markets’ confidence in Israel’s stability, which is obviously important for Israeli tech.
What are the three most important things the Israeli government should do today to accelerate the high-tech engine in the coming year?
- Wrap up the ongoing war in Gaza: The war is costly for Israelis on many levels. Among the benefits of its ending, beyond the anticipated return of the hostages, will be greater clarity and a sense of confidence in Israel for investors, customers and talent alike.
- Grow the talent pool: Israeli tech’s most precious resource is its talent. In order to protect and nurture it, the government should (1) ensure that a larger portion of the population receives education and serves in the military, enabling them to acquire skills that are needed in the tech workforce; and (2) invest heavily in attracting Jews living in the diaspora to Israel.
- Provide stability and predictability: After several years of turmoil, Israel needs to focus on fostering a secure and predictable environment that prioritizes recovery and sustained growth. We need to ensure Israel remains an attractive, safe, and straightforward place to conduct business and travel in and out of. A decade ago, forward-thinking policies and a thriving local ecosystem led to a significant shift: by 2012, around 80% of Israeli startups were incorporated locally, with many choosing to base their headquarters here. In recent years, we’ve reverted to an earlier trend, where the majority now incorporate in the U.S. To reverse this, the government needs to implement robust political, regulatory and tax policies that signal stability and long term viability, encouraging startups to stay rooted in Israel and ensuring the remarkable value they create benefits the country.
Are there new sectors you see as relevant? Are there any fields you anticipate will weaken significantly in the coming year?
We are seeing a new rise in defensetech, which I anticipate will continue into 2025. I believe the AI and data infrastructure categories will continue the acceleration we’ve seen from them in 2024.
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?
Though Israel has not yet produced a foundational AI model company to match the global giants (e.g. OpenAI or Anthropic), AI value creation is not limited to the foundational model layer. AI is a vast, multifaceted field with endless opportunities to build transformational companies across the entire stack, particularly within the application layers.
Indeed, there has been some success on the infrastructure layer coming out of Israel, for example, NVIDIA made four acquisitions in Israel to build out a meaningful R&D center, including two of our portfolio companies: Deci and Excelero. Data infrastructure that supports AI horizontally is also on the rise in Israel, as we’re seeing with success stories like VAST Data and Nimble.
That said, much of Israeli AI innovation is centered around vertical AI applications, and Square Peg has made several successful investments in this theme. Aidoc and Exodigo provide great examples of Israeli talent uniquely applying AI to tackle massive real-world challenges and deliver materially greater value. Aidoc’s unique AI applications for complex healthcare use cases and Exodigo’s combination of hardware, software and proprietary algorithms to transform infrastructure and utility visibility both illustrate the potential of massive AI-based companies emerging out of Israel. The evolution of large language models will amplify these and other companies further, particularly at the application layer. Looking ahead, there’s immense potential for AI companies in Israel, and that’s why it’s a core area of focus for Square Peg.
Could the global IPO drought end in the coming year?
Yes, there is the potential for 2025 to be an important year for IPOs. Conditions appear to be ripening as the macroeconomic environment becomes increasingly positive and investor confidence returns. Several recent IPOs have performed well which further increase the likelihood that we’ll see some notable IPOs in 2025 and 2026. Another contributing factor is that after the IPO drought, shareholders of high-quality, scaled-up companies have investors waiting for realizations, particularly as their LPs’ focus on DPI has grown.
From an investor's perspective: will the coming year be better for early-stage startups or more mature companies?
On the one hand, AI benefits the hyperscalers, and I believe they will continue to perform well on a fundamental level. However such a fundamental technological paradigm shift will materially change multiple industries, and in some cases this will come from newcomers creating enormous value. I am therefore really glad that we have both a VC fund and a public equities fund that generally invest in the same type of companies: high-quality, founder-led businesses with a meaningful competitive moat, primarily in AI, SaaS, and Fintech.
But on balance, I believe the coming year will be particularly great for early-stage startups. The major forces of AI, geopolitics and changes in regulation will shake up multiple industries, and startups will lead the charge in some of them, resulting in new generational companies. I do believe we will continue to see a concentration of capital and talent in the highest-quality startups, while the aggregate numbers for the entire asset class are not necessarily the indicators to focus on - this is a game of outliers.
Did you raise fund money in 2024 for an existing fund or a new one? What are your expectations regarding this matter for 2025?
Yes, we are currently raising our Fund 6 and Opportunities Fund 3 which will start investing in 2025. We commenced the fundraise in the second half of 2024 and expect to close in the first half of 2025. We feel fortunate to have fantastic long-standing investors, including top institutional investors and Australian pension funds as well as family offices and tech founders. We continue to expand our investor base with each fundraise.
How many investments did you make in 2024, and how does it compare to previous years?
Overall we have seen an uptick in investment activity across 2024, compared to 2023. We’ve made approximately 10 new investments across Israel, Australia and Southeast Asia, and deployed significant follow-on capital across our existing portfolio. However, our investment cadence is supply-driven and we do not target a given level of activity in a year.
Provide an example of an intriguing investment you made in 2024. What sets this company apart, or what is distinctive about its sector?
Square Peg co-led Qodo’s (FKA Codium) 2024 Series A. Qodo helps developers automate testing of their code and avoid software bugs that cost companies trillions of dollars. Developers and enterprises are increasingly adopting AI-code generation, but generated output isn’t guaranteed to work all the time. Qodo is raising the bar for AI-generated code by putting quality front and center. As AI is increasingly adopted at the enterprise, the pressure to deliver reliable, bug-free solutions has never been higher. While most players in this segment prioritize speed at the expense of precision, Qodo focuses on code integrity from day 1—offering a smarter way to build fast without cutting corners. With rigorous checks built into its multiple coding agents, Qodo ensures performance and scalability go hand in hand.
Two notable companies that you think will thrive in 2025.
Company Name: Exodigo
Sector + description of the product/service: Construction tech. It is common for scans to miss key features (e.g. utility lines) in underground mapping, leading to dangerous accidents and cost blowouts. Exodigo’s fullstack solution combines multi-sensor hardware with AI-based signal processing to provide accurate, non-intrusive maps of the underground of construction sites. This avoids expensive, exploratory excavations and drilling during the construction of infrastructure (primarily energy and transportation) and buildings.
Investment amount + total: We invested twice in Exodigo to date, most recently contributing to their 105m A round in early 2024.
Founding Year: 2021
Reasoning why this is their year: Exodigo has the potential to become a generational company, disrupting several large markets through its highly differentiated deep technology and vertically integrated product. Exodigo’s solution is best-in-class and works well across all surface types. It is particularly defensible, by virtue of combining HW, SW, proprietary AI and a complex go-to-market motion. Leadership has assembled an impressive team and proven an ability to attract major customers and deliver them immense value.
Company Name: Nimble
Sector + description of the product/service: Nimble’s platform enables companies to effortlessly interact with web data. Nimble turns long and complex cycles of building web scraping pipelines and scripting into a fast ‘full-stack’ solution that collects unstructured website data and turns it into structured, hypergranular, and easy-to-consume tables. It enables anyone in the organization to seamlessly access that data in the way that suits their needs through the Nimble Knowledge Cloud.
Investment amount + total: ~45m
Founding Year: 2021
Reasoning why this is their year: Data forms the backbone of AI systems. The proliferation of AI applications inside enterprises drives growing demand for a diversity of high-quality, well-structured data. Nimble provides an effective data acquisition solution that automates the scraping of real-time, structured data from across the web. The convenience and the accuracy of Nimble’s refined enterprise offering distinguishes it within the category, where it is currently the clear innovator.
