Investors turn to Israel’s battle-tested defense-tech start-ups as funding hits record $40.8b. - The Jerusalem Post

Global investment in defense technology reached a record $40.8 billion during the first half of 2026, according to a new industry report from Israel-based venture capital firm Protego Ventures. The State of Defense Report, shared with The Jerusalem Post, attributes the surge to heightened geopolitical tensions, rising military spending, and demand for autonomous systems and deployable battlefield technologies. Protego estimates global defense-tech investment has climbed to nearly $70 billion over the past 12 months. Capital is increasingly concentrating in a smaller number of large deals, with leading defense start-ups attracting unprecedented valuations. By category, autonomous systems, including drones, unmanned surface vessels, and unmanned ground vehicles, took 24% of funding, followed by sensing, connectivity, and security at 16.8% and weapons and munitions, including directed energy weapons, at 14.4%.

Israel's ecosystem is becoming a significant part of this trend. Per the report, defense, space, and quantum technologies accounted for 11.6% of all Israeli tech funding in H1 2026, roughly $846 million, up from less than 2% of Israeli venture funding five years ago. The ecosystem has grown to about 350 active companies from around 150 eighteen months earlier, and one-third of Israeli defense-tech start-ups were founded after October 2023. More than 100 have had technology adopted directly into IDF operations. Protego co-founder and managing partner Lital Leshem said that many founders are reservists or recent soldiers who start from real operational needs and are validated in the field before conventional procurement cycles would allow. The report also notes that Israel's Defense Ministry Directorate of Defense Research & Development (MAFAT) placed NIS 1.08 billion in orders from defense tech start-ups in 2025, with 25% from foreign customers, down from NIS 1.22 billion the previous year.

The report highlights concentration among leading players. Anduril's $5 billion Series H round represented nearly one-third of global defense-tech funding in Q2 2026, and autonomous systems captured more than 42% of quarterly investment. Venture-growth companies in the sector reached median pre-money valuations of $1.4 billion in Q1, nearly triple the 2025 median. The report also cautions that procurement remains difficult: of more than 15,000 dual-use scaleups across NATO and allied markets, an estimated 5% to 6% have won government contracts. Protego co-founder and general partner Lee Moser said Israeli companies are typically built for export from inception, a structural advantage given the country's multi-terrain threat environment.

Exits are also cited as evidence of market maturation. In August, Motorola Solutions completed its $1.5 billion acquisition of Israeli counter-drone company D-Fend Solutions, which the report describes as the most expensive Israeli defense-tech exit on record. A month later, XTEND, a Protego portfolio company and drone and autonomous systems developer, listed on the New York Stock Exchange at a valuation of approximately $1.5 billion. The report suggests Israel's combination of military expertise, rapid development cycles, and real-world validation could position it as a key supplier of next-generation defense technologies to allied nations.