Deep Dive Into Deep Tech

Modern humanity faces existential challenges in a large range of fields: from ensuring that a growing and aging global population has adequate food, water, and healthcare, to combatting climate change through widespread use of sustainable energy and agriculture – among others. Overcoming these challenges depends on researchers successfully developing scientific and technological breakthroughs that can make an actual difference. Ventures that are based on such breakthroughs fall in the Deep Tech category, and Israel today is a veritable Deep Tech powerhouse.

Deep Tech encompasses a large range of fields and industries, including quantum computing, semiconductors, aerospace engineering, robotics, pharmaceuticals, energy solutions, and more. Generally, it involves the development of a tangible product, unlike the vast software industry and its various branches, such as Cyber and FinTech, which are more virtual in nature.

Dror Bin, CEO of the Israel Innovation Authority, explains that Israel was in fact a Deep Tech hub long before the term was coined. "Israeli high-tech started with Deep Tech. In the 1970s, multinationals such as IBM and Motorola opened R&D centers in Israel, where they engaged in intensive research and developed innovative tangible technologies," he points out. In recent times, Deep Tech was overshadowed by a large wave of software start-ups, not only in Israel but all over the world. "As a result, most investors focused on software companies, but now there is a return to Deep Tech," Bin says.

Deep Tech vs. software

Every start-up involves a business risk. Will it be able to compete in its market? Will customers adopt its products? Will it obtain enough funding? While these concerns apply to all new ventures, Deep Tech start-ups face a double risk, explains Bin. In addition to the usual business risk, they also contend with a scientific/technological risk. Frequently growing out of research breakthroughs in university labs, Deep Tech start-ups typically require much more time to develop until their products are ready to be introduced to the market.

"Deep Tech companies usually need more money and more time in order to succeed. They have longer innovation cycles because they involve scientific breakthroughs and tangible products that must be perfected," says Bin. Indeed, it often takes several years to verify the science, and then it takes time to develop a prototype and prove that it works outside the lab. Finally, the product must be fine-tuned and extensively tested to make sure that it possesses the promised benefits. In contrast, a start-up in the Cyber field, for example, can often start selling its first product within just a few months and can begin seeing revenues within as little as two years. By then, the entrepreneurs can sometimes even sell their company at a hefty profit.

Since Deep Tech start-ups take more time and require more funds, their investors must have deeper pockets and more patience. Nonetheless, Bin asserts, "the probability of succeeding in Deep Tech is similar to the success rate in software, and potential returns are just as attractive, if not more so. Deep Tech companies that succeed bring phenomenal results for investors."

Reducing the risk level

The Israel Innovation Authority's mission is to support the Israeli innovation ecosystem by proactively promoting the growth of local high-tech companies and entrepreneurs. It is an independent and impartial statutory public entity that invests in innovation to promote sustainable and inclusive growth. In particular, it provides grants to support disruptive technological innovations and is engaged in creating the infrastructure to prepare for future technologies.

These days, the Authority is determined to nurture promising deep-tech ventures. "Our role is to encourage investors by reducing the risk level," Bin explains. "That's why last year we launched the Deep Tech Start-Up Fund. We are taking part in the funding rounds of early-stage Deep Tech start-ups by providing non-dilutive grants. We give money but don't get involved in the management. Eventually, if the company is successful, it pays royalties to the Innovation Authority; if not, they aren't obliged to return any of the money."

The earlier the phase, the larger the portion of the round that the Deep-Tech Start-Up Fund provides. For the youngest start-ups that are still in the ideation phase and have the hardest time securing investors, the Innovation Authority offers 80% of the total funding round. The Fund grants 60% to start-ups in the Pre-Seed phase, 50% to those in the Seed phase, and 30% to Deep Tech companies seeking Round A funding. "Instead of putting 100% of the money for the Pre-Seed phase, investors only need to provide 40%, with the rest coming from the new Fund," Bin clarifies.

The Deep-Tech Start-Up Fund has already invested in over 100 Deep Tech start-ups since it was launched a year ago, and it is poised to be the Innovation Authority's largest fund. In 2025, it will already invest approximately $200 million (NIS 700 million) in early-stage Deep Tech start-ups.

The Israel Innovation Authority also helps reduce risk for Deep Tech start-ups and investors by establishing national R&D laboratories that serve specific sectors. "When we identify a Deep Tech field for which it is very costly to establish a laboratory as a result of the expensive equipment and high operating costs, and we see that there is a cluster of companies that are active in that field, we fund a laboratory that can serve all the relevant companies in the cluster," says Dror Bin.

One example is the Israeli Quantum Computing Center which the Innovation Authority established in 2024 at a total budget of NIS 100 million. The new center, which is adjacent to Tel Aviv University, enables access to research and development on three different quantum processing technologies and provides services to the Israeli quantum computing community in both industry and academia. "There are many start-ups in this field in Israel but nowhere where they could check their technologies and do benchmarking. In the new lab, all the start-ups can come, install their equipment and develop their products," Bin adds.

Other examples include the Synthetic Biology Laboratory which the Authority established in Rehovoth and the FoodTech Fermentation Laboratory in the Galilee. Bin points out that many Israeli FoodTech start-ups are involved in developing alternative proteins through fermentation processes, yet the infrastructure required for developing these products is very expensive. The new lab serves a large cluster of FoodTech start-ups.

AI and Bio-Convergence revolutions

Looking ahead, the Israel Innovation Authority's CEO predicts that the technologies that are going to make the biggest impact on Israel's high-tech ecosystem in the coming years are Artificial Intelligence (AI) and Bio-Convergence – the two prime examples for Deep Tech technological platforms.

AI is set to radically disrupt almost every sector. In the pharmaceutical industry, for example, the drug development process used to be very expensive and lengthy, involving many experiments. Thanks to AI, the process has already become significantly shorter. "Today, many Israeli start-ups are developing AI platforms that discover and develop new drugs and therapeutics. This is causing a veritable revolution in the way drugs are developed around the world, and it is lowering the costs dramatically," Bin shares.

Robotics is another Deep Tech field that is being revolutionized by AI. While robots' electronics were developed long ago, their 'brain' was missing. "Once you use AI, robots behave like in science fiction: you can already see robots that are nearly human – in offices, factories, warehouses, etc. Their brains are AI and they carry out human activities," says Bin.

While everyone has heard of AI, Bin expects Bio-Convergence to be just as disruptive. "It has as large a potential of being disruptive as AI, but it's a revolution that is happening more quietly," he admits. Bio-convergence is the combination of Biology with Engineering and Computer Science in order to create a product which is based on biology. It is creating a wave of innovation in a large variety of sectors, including Health, Energy, Agriculture, Defense, and even Construction.

Bin explains that scientific breakthroughs such as the ability to engineer DNA, RNA, and protein gave birth to start-ups that use Bio-Convergence to modify life forms, invent new life forms, grow human organs in the lab, print organs, and more. One Israeli HealthTech company, for example, has developed a technology for 3D printing of retinas using biological ink. These retinas can then be implanted in millions of patients around the world who otherwise would wait years for a human donor and in the meantime risk going blind.

Another company, in the Defense field, has developed microorganisms that have been genetically modified to detect explosives in mine fields – a game-changer for clearing mines. Bio-Convergence is even producing remarkable innovations for the construction industry, including biological cement substitutes that emit much less greenhouse gas than regular cement production and are capable of "self-healing" fissures in walls.

"Since AI and Bio-Convergence are so important to the growth of Israel's tech ecosystem, the Innovation Authority is leading two national programs that invest in these technologies," Bin notes, adding that the Authority is not investing only in the technologies themselves but, rather, also in the infrastructure necessary for developing these technologies. Specifically, it is investing in laboratories and in applied research in industry and in academia, and is nurturing talent in these fields.

Thanks to Israel's world-class research facilities and talent, as well as decades of government support for entrepreneurs and start-ups, Israel has every reason to expect to remain a global leader in a large spectrum of cutting-edge fields. To ensure that this happens, the Israel Innovation Authority will continue to make sure that the ecosystem receives the support it needs to flourish and thrive.

The numbers speak for themselves
Dror Bin, CEO of the Israel Innovation Authority, has a simple message to potential investors from around the world: "If you want to make money, come to Israel. Israel has proven itself through the years."

The numbers indeed speak for themselves: 2024 saw an all-time record for mergers and acquisitions of Israeli companies – with multinationals spending close to $16 billion to acquire Israeli start-ups. 2024 was also an excellent year for private investments in early-stage Israeli start-ups, totaling approximately $10 billion, which was more than the previous year. "Investors understand that there are outstanding companies here in Deep Tech and other tech silos," Bin stresses.

At the same time, in 2024 the Israel Innovation Authority reported a 60% surge in the number of requests for funding from Israeli entrepreneurs and early-stage start-ups. In fact, it was the year with the largest number of requests ever. Moreover, the number of entrepreneurs from the Arab sector who applied to the Innovation Authority for funding jumped by 300% last year.

"Although 2024 was clearly a difficult and challenging year for Israelis, when we look at the macro, we see a positive picture," Bin insists. "It was surprising that it happened during wartime, but investors came here because they believed that the best technology in their field is in Israel. It's worth it for them to take the risk despite the hostile environment."

"What happened in the past year could be a trigger for a 'start-up baby boom,' including in new fields that weren't previously active in Israel," Dror Bin predicts. Indeed, many people left their comfort zones – by going to reserve duty or volunteering in all sorts of places – and witnessed needs that they otherwise wouldn't have noticed. Bin says that, "the Innovation Authority is seeing a great deal of entrepreneurial activity and lots of start-ups starting to be formed as a result of the war" – definitely a reason for optimism.

For more information, visit innovationisrael.org.il/en >>

Partnered with the Israel Innovation Authority