Silicon Valley invests in Israeli startups in bid for U.S. defense market

Israel's Defense Ministry, Tel Aviv University hosted the country's first defense-tech summit in December

- Sharon Weinberger

Venture-capital firms that have been pouring money into American defense startups are setting their sights on Israel, investing in military tech companies that have emerged since the country went to war in Gaza and Lebanon.

Driving the investment is the belief that Israeli firms will increasingly compete for contracts in the U.S. and in European countries where military spending is expected to surge in coming years.

One Israeli startup called Kela has recently scored investments from two of the biggest U.S. venture-capital firms involved in the defense market, as well as from the Central Intelligence Agency's investment arm.

"This is the first big venture investment in Israel," said David Cahn of Sequoia Capital, which funded Kela's entire seed round.

Lux Capital stepped in on the next round, the Series A.

The funding from Lux and other investors brought the total amount raised for Kela to $39 million.

Kela's product isn't a specific weapon, such as a drone or missile, but software that integrates commercial and military technologies, for applications such as border defense.

That product is just the first step for the company, which aims to compete for contracts to develop and integrate major weapons systems, said co-founder and President Hamutal Meridor.

"Outside of Israel, in the U.S. and Europe, we are going to go after big programs," she said.

Israel is hoping there will be more of these large investments in the defense-tech sector, which is still dominated by established companies such as Elbit Systems, Israel Aerospace Industries and Rafael Advanced Defense Systems.

In December, Israel's Defense Ministry and Tel Aviv University hosted the country's first defense-tech summit to bring together investors, companies and government officials.