Jump in Defense Ministry orders from Israeli startups

During the first year of the war, between October 2023 and September 2024, the Israeli Ministry of Defense placed orders worth NIS 601 million to 86 startups and small companies — five times more than the previous year, according to Defense Ministry Directorate data. Research and Development (DDR&D) (MAFAT), offered exclusively to ‘Globes’.

During the war, the volume of MoD orders jumped, and unlike in the past, they include close collaboration with startups as well as major deals with large defense companies. The cooperation with startups, led by the Director General of the Ministry of Defense, Gen. (Res.) Eyal Zamir, and the Head of the Ministry of Defense, Brig. Gen. (Res.) Dr. Danny Gold will arrive at the Defense Technology Summit held by Tel Aviv University’s Blavatnik Interdisciplinary Cyber ​​Research Center in collaboration with MAFAT this week.

As of the end of September 2024, MAFAT has worked with 284 startups and small businesses, 200 of them directly and 84 through external mechanisms. This represents an increase of 38 companies since January 2024. As for direct orders, in the third quarter of 2024 alone, deals worth NIS 134 million were concluded, with the interesting issue being how GTG (government to government) transactions are not only reflected in Large companies. Since the beginning of the year, MAFAT has tied up 13 startups and small businesses in deals worth NIS 74.5 million with foreign countries, most of them with the United States. The Ministry of Defense sees these increasingly advanced contracts as a catalyst for the IDF’s technological advancement. A breakdown of DoD orders since January 2024 shows that 37% of deals were with pre-seed startups, 25% were with seed-stage startups, and 19% were C-stage and later.

Meanwhile, when dealing with companies with direct relationships with MAFAT, the proportion of companies post pre-seed or seed stage jumps to 64%, while 16% of companies are after Series A rounds. After the war, more than 20 startups moved from development to production or accelerated production, including Third Eye, Regulus, Robotican, Smartshooter, and NextDim. Breaking down requests by industry during the war, we find that they were searched, primarily, in startups and small businesses: 55% of requests were directed to independent platforms.

“Resiliency is vital to war

In the indirect channel, the Department of Defense nurtures early-stage startups, through the Department of Defense’s accelerator program INNOFENSE, which has completed four cohorts of 58 startups to date. These companies operate in various fields, including artificial intelligence, navigation and deep technology, with 58% of projects completing their participation after a proof of feasibility (POC). Of these companies, five received orders during the war: Alumor, Xmetix, NextDim, Convex, and Nisaba. The defense industry around the world is moving towards duality: use for both defense and civilian needs. For this purpose, the Ministry of Defense has signed non-binding framework agreements with three venture capital funds: AWZ, Chartered Group and Dual Impact. So far, according to fund reports, they have invested about NIS 264 million in 15 companies, five of which have direct relationships with MAFAT: Xtend, DeepKeep, Xrodes, Viisight, and Corsound.

Another indirect channel in which MAFAT is involved, in cooperation with the Israel Innovation Authority, is Memad, which began working 12 years ago to provide grants to companies with innovative dual-use technologies, at the proof-of-concept stage.

Of the 73 operating startups and small businesses that received grants from Memad, 41 received applications and a supply number from MAFAT. The known amount of funding raised by all these companies is approximately NIS 1.3 billion, of which NIS 273 million was raised by one company: Quantum Source.

“In a small company, by virtue of being small, all the paperwork is faster. Instead of waiting for a legal department, or a board of directors, things are easier,” explains Colonel Nir Weingold, head of the IDF’s Planning and Economics Department. And the Systems Analysis Department.

“A startup needs to close deals quickly, move forward with funding, and create a stable business,” he says. “Agility and a desire to deliver quickly are essential to the war.”

Colonel Weingold is optimistic about innovation trends in this field, and says that the conference marks another stage in the development of defense innovation in Israel: “The first day will deal with how technology impacts the battlefield, and the second with innovation and investors. This class was conducted to demonstrate its success” to demonstrate how companies have managed Emerging companies have come a long way, creating that force multiplier for a strong defense industry, with academia and startups growing with money from funds.”

Published by Globes, Israel Business News – en.globes.co.il – on December 8, 2024

© Copyright Globes Publisher Itonut (1983) Ltd., 2024