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U.S. Venture Capital Targets Israeli Defense Tech in Strategic Shift Toward Military Innovation
Edited by: TJVNews.com
As geopolitical instability deepens and military spending surges across the Western world, U.S. venture-capital firms are increasingly turning their focus toward a rising frontier in defense technology: Israel. According to a report that appeared on Sunday in The Wall Street Journal, American investors that have been aggressively backing defense startups in the United States are now channeling substantial capital into Israeli military tech ventures—particularly those born out of the country’s current conflicts in Gaza and Lebanon.
This emerging trend reflects a broader transformation in defense-sector investing, where software-driven innovation, rather than traditional weapons manufacturing, is taking center stage. Israeli defense startups, many of them founded amid wartime necessity, are now seen as strong contenders in global defense markets—including the U.S. and Europe, where defense budgets are poised to expand dramatically in the coming years.
Unlike traditional defense firms that produce drones or missiles, Kela’s core product is a software platform that integrates commercial and military technologies for applications such as border security. This modular approach reflects a larger trend in defense innovation—one in which artificial intelligence, system interoperability, and adaptable digital frameworks are seen as key competitive advantages.
“This is the first big venture investment in Israel,” David Cahn of Sequoia Capital told The Wall Street Journal. For Kela, however, this is just the beginning. According to co-founder and President Hamutal Meridor, the company’s ambition is to compete for major weapons system integration contracts not just in Israel, but also across the United States and Europe. “Outside of Israel, in the U.S. and Europe, we are going to go after big programs,” she told The Wall Street Journal.
Kela’s ascent is emblematic of a broader defense-tech renaissance unfolding in Israel—a country already renowned for its technological prowess. While Israel’s defense landscape has long been dominated by legacy giants like Elbit Systems, Israel Aerospace Industries, and Rafael Advanced Defense Systems, there is now growing momentum behind nimble startups that bring software-first solutions to the battlefield.
To accelerate this shift, Israel’s Defense Ministry partnered with Tel Aviv University in December to host the country’s first defense-tech summit—an event designed to connect startups with investors and government stakeholders. As The Wall Street Journal report noted, the summit highlighted Israel’s ambitions to position itself as a global hub for defense innovation, drawing parallels to the success its cybersecurity sector has seen in previous decades.
“There is a renaissance now in defense tech that plays absolutely perfectly into this ecosystem that exists here in Israel,” said Lorne Abony, a venture capitalist with Texas Venture Partners, during the summit. Abony’s firm, which launched in 2024 with a $50 million fund dedicated to Israeli defense investments, sees enormous potential in Israel’s wartime ingenuity and technological sophistication. Although Abony is not an investor in Kela, he is bullish on the country’s startup landscape: “You’re five and a half times more likely to have a tech unicorn from an Israeli investment than a U.S. investment,” he told The Wall Street Journal.
The surge of U.S. interest in Israeli defense startups is occurring alongside a parallel transformation within the American defense industry. Under the Trump administration, there is increasing emphasis on redirecting Pentagon spending toward next-generation technologies, a shift that has already elevated firms such as Palantir Technologies and Anduril Industries to prominence. As The Wall Street Journal reported, Anduril is expected to close its latest funding round at a $28 billion valuation, signaling robust investor appetite for defense innovation.
Elon Musk, whose company SpaceX has become a significant defense contractor, is now heading the Department of Government Efficiency, reinforcing the administration’s prioritization of technological modernization across defense infrastructure. In this context, the rise of Israeli defense startups fits naturally into a transatlantic alliance of military tech development—one underpinned by venture capital, software innovation, and rapidly evolving battlefield requirements.
While many of Israel’s new defense startups are just beginning to compete for global contracts, they are standing on a foundation built by decades of military and intelligence excellence. The Wall Street Journal report explained that the country’s cybersecurity sector has long been a magnet for U.S. venture funding, with many startups founded by alumni of Unit 8200, Israel’s elite military intelligence division.
This legacy is now extending into broader defense applications. Startups such as Xtend, which produces unmanned aerial systems used by the Israeli military in Gaza, have already demonstrated how Israeli tech can deliver field-ready solutions at speed and scale.
According to Startup Nation Central, a Tel Aviv-based nonprofit that tracks Israel’s innovation economy, the number of Israeli companies operating in the defense sector has grown from 160 to more than 300 in just one year. CEO Avi Hasson told The Wall Street Journal that the Kela investment reflects a larger “strategic bet on the market and on the entrepreneurs and on the sector.” Investors believe these startups are well-positioned not just to serve Israeli defense needs, but to compete for contracts in the U.S. and Europe, where military spending is on a steep upward trajectory.
While American startups have struggled to penetrate the Pentagon—capturing only about 1% of Defense Department contracts—the challenge is even steeper for non-U.S. firms like Kela. Yet venture capitalists see a growing opportunity in the shifting dynamics of global defense procurement.
Raj Shah, managing partner at Shield Capital told The Wall Street Journal, “You’ve got a large, growing pool of venture dollars chasing the fact that governments are increasing top-line defense spend—and more importantly, shifting the mix of spend toward young startups.” Whether the Pentagon will ultimately buy from foreign startups remains uncertain. “I don’t know if we know the answer to that yet,” Shah acknowledged.
Kela is not producing conventional weapons. Instead, its core product is a software platform that fuses commercial and military technology—everything from AI tools to sensors to night-vision systems—into integrated solutions for real-time battlefield application. This model, as was indicated in The Wall Street Journal report, echoes the early strategy of Palantir Technologies, which deployed engineers directly into conflict zones to rapidly iterate software solutions alongside soldiers.
Kela refers to its engineers as “techno-warriors”—individuals with both combat experience and technical mastery, capable of transforming battlefield needs into immediate technological fixes. Co-founder and president Hamutal Meridor, herself a former general manager for Palantir in Israel, deliberately draws parallels to Palantir’s messianic mission.
“The founding of Kela really is very tied to October 7, obviously,” Meridor told The Wall Street Journal, referencing the Hamas-led attack that marked a turning point in Israel’s war posture. “We feel like it’s our mission to prevent the West from having to go through an October 7. The West is still living in October 6.”
For Kela, the company’s battlefield experience isn’t just a branding strategy—it’s a core design principle. CEO and co-founder Alon Dror recalled a striking moment on the eve of a ground maneuver against Hezbollah in Lebanon, where Israeli platoons were grossly under-equipped with night-vision gear, while Hezbollah fighters had access to state-of-the-art equipment sourced online. “We realized that Hezbollah had one [pair of] night-vision goggles for each fighter, which is crazy,” Dror told The Wall Street Journal. Kela’s software is designed to ensure that military units can better integrate and deploy such commercial technologies in combat environments.
That battlefield grounding is precisely what excites Kela’s backers. Brandon Reeves, general partner at Lux Capital, noted that while engineers at America’s five largest defense contractors rarely have direct combat experience, “if you take Kela, I would imagine it rounds to a hundred percent. It’s a different DNA.”
Although IQT (formerly In-Q-Tel)—the CIA’s investment arm—contributed a smaller amount than Sequoia or Lux, the strategic implications are enormous. As The Wall Street Journal reported, IQT’s endorsement has historically helped startups like Palantir gain credibility and access to the U.S. defense ecosystem.
“We open doors,” said Clayton Williams, IQT’s managing director in the U.K., who described his rationale for backing Kela as grounded in its battlefield-driven development model. “Companies that are learning from the battlefields and getting feedback from the front lines are developing their technology at a rate that I personally haven’t seen before,” he told The Wall Street Journal.
Although IQT has invested in other Israeli tech ventures in the past, Kela marks its first dedicated stake in an Israeli military-focused startup, further cementing Kela’s position as a bellwether for this new wave of transatlantic defense innovation.
The Israeli defense-tech ecosystem, born in crisis and hardened by conflict, is fast becoming a global proving ground for the future of warfare. And with top-tier U.S. venture capital—and even the CIA—throwing their weight behind it, companies like Kela may soon redefine what it means to be a defense contractor in the 21st century.
