Israel's Defense Ministry sees startups as vital for war effort

The growing security tensions in the world have put on the agenda the need for advanced technologies in the security sector.

Representatives of the Ministry of Defense Directorate of Defense Research & Development (DDR&D) (MAFAT), venture capital investors, and entrepreneurs participated in a conference dedicated to startups operating in the field of security, which was held at the initiative of the Fusion Fund and the Pearl Cohen law firm.

The conference was opened by Col. Nir Weingold, Head of Planning, Economics & IT Department at DDR&D (MAFAT). He presented the need for work with startups to develop innovation on a flexible and rapid model.

The Ministry of Defense currently works with about 270 startups, either directly or indirectly. But the enemy also knows how to gain access to commercial, technological developments and use them in warfare, and we see this in the activities of Hamas and Hezbollah.

Increase in competition

This increases the direct competition against Israel in the race to develop innovation and deploy it in the field. Therefore, the Ministry of Defense works with commercial technologies, which can have a dual purpose by also being used in security.

Conference organizer and Fusion Fund partner Guy Katsovich said, "We held the event since recently defense has found its way to the heart of Israeli high-tech. More people are interested in operating in the industry, but business network connections in the industry are not sufficiently developed.

The conference will allow connections between people in the Ministry of Defense, venture capital investors and entrepreneurs so that they can share ideas, and create the required work contacts to move the industry forward. We too as investors in startups that have made 30 investments since the war begun, are interested in operating in the defense sector."

Adv. Guy Lachmann, Partner and Co-Chair of the IL High-Tech Practice Group at the Pearl Cohen law firm added, "It is evident that the defense sector is in the process of being formed, and we are learning as we go. Defense ventures suffer from many legal dilemmas already when they are being founded, and there is great debate on the question of where the intellectual property is located and its protection, choosing the optimal place for incorporation that will allow working with a range of governments and complying with the comprehensive regulation that they will have to successfully meet."

Speaking on a panel of venture capital investors held at the event, 10D Partner Alon Kantor said, "Since the customers for defense ventures are governments and security forces, sales procedures are slower and it is more difficult to reach customers and receive feedback from them about the product.

When I was an entrepreneur in the sector, we opened a company in Israel with a subsidiary in the United States. This made it very difficult for us to sell to US security organizations and raise money from investors in the US and in hindsight it would have been better to set up the company in the US."

Lisa Cohen, Partner at Intel Capital, added, "As investors, we need to see that there is a dual use for technologies that the startup is developing, that the company has a market with security needs alongside a market for commercial needs. In addition, there needs to be a person with experience and familiarity with the US security forces in the founding team of the venture, who knows the tracks and can open doors in the market, which is so difficult to penetrate into."

TLV Partners Partner Yonatan Mandelbaum thinks differently. He said, "We do not believe in dual use of technology and prefer that in the first five years the company focuses on the security sector. It is true that it is challenging to find customers compared with the commercial market but from the moment you have sold it, you have made it with long-term contracts that are not easily canceled. As for bringing generals into the founding team, it can kill the startup. They burden the companies and it is better to work with them as external consultants."

Miriam Shtilman-Lavsovski, Partner at Tal Ventures, said, "Entrepreneurs who founded companies in commercial fields discover that they have a security market only after establishing contact with entities such as MAFAT. And on the contrary, cybersecurity was also a military necessity and made a big transition to the commercial market."