Here’s a number that should surprise you: Israeli startups raised $15.6 billion in 2025. That’s more than double what they raised two years earlier—during a war. The Tel Aviv stock exchange was the best-performing equity market in the world last year, up 51%. Google just agreed to pay $32 billion for Wiz, an Israeli cybersecurity company founded four years ago.

Counterintuitively, the Tel Aviv market tends to rise during wartime — bucking the global pattern in which conflict and uncertainty trigger a sell-off as investors retreat to safer assets. The historical context of the earlier Gaza-related phase resulted in a drawdown on the order of 7%, but the 2025-26 pattern today has been of rapid recovery and in this current episode of the US-Israeli War against Iran , outright gains with these early days of conflict.

None of this fits the story most people have been told. The story most people have been told is that Israel is a risky bet in a dangerous neighborhood—brilliant at technology, maybe, but too volatile, too small, too geopolitically complicated for serious capital allocation.

That story was always incomplete. Now it’s becoming obsolete. And the reason isn’t just that Israel’s tech sector keeps producing winners. It’s that Israel is quietly rebuilding the plumbing—the market structure, the trading rules, the listing frameworks, the bond architecture and equity securities design—that determines whether capital can actually flow to where the innovation is.

The Discount Nobody Talks About

If you’re a pension fund manager or a family office allocator, you’ve probably heard the bull case for Israel’s tech economy a hundred times. What you may not have heard is that you can still buy into it at a discount.

The 2023–24 conflict compressed Israeli asset valuations across the board. Credit agencies downgraded. Foreign capital retreated. The shekel weakened. All the things that happen when geopolitical risk moves from “theoretical” to “on the evening news.” But here’s what didn’t happen: the innovation engine didn’t stop. Technology exports—software, cybersecurity, AI, cloud services—kept growing throughout the conflict, because they’re services, not physical goods. You can’t blockade a SaaS contract.

By early 2026, both S&P and Moody’s had reversed their downgrades. GDP growth projections are running between 3.5% and 5.2%. The shekel has strengthened 15% against the dollar. But the valuations haven’t fully caught up. Israeli tech companies at equivalent revenue and growth metrics still trade below their American, European, and even Asian peers. That gap is your margin of safety as an investor in Israel—and it’s closing.

Why Israel Bounces Back (and Why It’s Predictable)

The resilience story isn’t mythology. It’s math.

Israel invests 6.35% of GDP in civilian R&D—more than double the OECD average, and the highest ratio of any country on earth. That’s not a feel-good statistic. It’s a structural shock absorber. When conflict hits, R&D doesn’t stop. It accumulates. And when the conflict ends, all that accumulated intellectual property converts into growth faster than in economies that depend on factories or commodity cycles.

The pattern is remarkably consistent. After COVID, Israel’s GDP contracted 1.5% and then surged 9.9%—one of the fastest recoveries in the developed world. After the 2023–24 conflict, GDP grew just 1% in 2024, then rebounded to 3.1% in 2025, with projections north of 5% for 2026. Every time, the recovery is V-shaped and tech-led. Every time, investors who sold at the bottom missed it.

For sophisticated allocators, the implication is straightforward: if your risk model captures the downside of geopolitical events but doesn’t model the recovery that has followed every single one, you are systematically overestimating net risk.

The Real Story: Market Structure for Scale-Ups, Not Just Startups

But here’s the part of the story that rarely makes it into the financial press, and the reason I’m most optimistic about what’s ahead.

Israel has long suffered from a paradox: one of the world’s deepest innovation pipelines feeding one of the developed world’s thinnest public equity markets. Israeli companies would build in Tel Aviv, then list in New York. The Tel Aviv Stock Exchange was too small, too illiquid, and—until January 2026—on a Sunday-to-Thursday trading week that was out of sync with every major global market.

That last problem is now fixed. Israel shifted to Monday–Friday trading this year. It sounds technical. It’s not. It’s the difference between being included in global indices that control trillions in passive capital and being excluded from them. It’s the difference between a market that international investors can access without friction and one they skip because the calendar doesn’t match.

And the trading week is just one piece. A much broader reform agenda—one the Milken Innovation Center has been involved in designing since our 2014 Financial Innovations Lab with Israel’s Securities Authority, Bank of Israel, and Finance Ministry—is reshaping the entire market architecture. Lighter disclosure requirements for growth-stage tech firms. SPAC (more transparent and focused on AI, data infrastructure, energy, and fintech) and SPV structures adapted to Israeli law. Cross-listing frameworks for dual Tel Aviv–NASDAQ listings. Green and sustainability bond issuance aligned with international standards. Regional collaboration on capital markets through the Abraham Accords corridor and the IMEC-Corridor stretching from Mumbai to Marseilles. Blockchain-based settlement for digital securities and possible extension into project and municipal financing.

On the buy side, the reforms are equally significant. A new Yozma 2.0 program—$450 million in government co-investment in venture capital—is already drawing Blackstone, KKR, Apollo, and StepStone.  Imagine what would happen if that was brought to scale in Deep Tech. Accredited investor thresholds are being aligned with OECD norms, broadening the eligible investor base overnight. And domestic households, historically underweight in their own equity market, are starting to participate.

Is Israel risk-free? Of course not. Fiscal strain from elevated defense spending is real—debt-to-GDP is projected at 70% in 2026. The geopolitical environment remains complex. Coalition politics are unpredictable and destablilizing.

But institutional investors don’t allocate to the absence of risk. They allocate to asymmetric return profiles where risk is understood, compensated, and—in this case—being structurally reduced by the very reforms that make the market more attractive for other reasons. The geopolitical risk premium in Israeli assets has historically overcompensated investors on a decade-long horizon. There is no reason to believe this pattern has changed.

What we are witnessing is not just another cycle of Israeli economic resilience—though it is that. It is the construction of capital markets (both public and private) designed to match the scale of the innovation economy it serves. The first generation of reforms gave Israel a modern exchange,  increased competition in financial services, a pathway to securitization. The next generation, launching through a new series of Financial Innovations Labs this year, aims to give it a global one.

The question for allocators is simple: do you want to invest at compressed valuations, with reforms deepening the market in real time? Or at the normalized valuations the recovery and reforms together will establish?

History suggests the window of opportunity doesn’t stay open long.

This article is based on a recent Milken Innovation Center Policy Brief, Why Now? Re-invest in Israel: The Case for Institutional Capital Allocation to Israel’s Capital Markets (see: here)

© The Times of Israel (Blogs)