Ministry of Defense ramps up startup procurement
A new MAFAT report obtained by Globes reveals that the volume of orders from startups doubled in the first half of 2026, alongside records in capital raising and defense exports. Autonomous platforms and AI solutions lead the volume of engagements.
In the first half of 2026, the volume of orders received by startups from the Ministry of Defense doubled to 960 million shekels, with 37 new companies receiving contracts. This is according to a report by MAFAT (Directorate of Defense Research and Development) at the Ministry of Defense, revealed for the first time in Globes.
MAFAT data indicates that the growth trend in the Israeli defense-tech sector continued in 2026, following record defense exports of 19.2 billion dollars in 2025. The first half of 2026 also saw record-breaking capital raising and exits within the sector.
During this period, capital raising, IPOs, and M&A activity exceeded 2.5 billion dollars. Analysis shows that MAFAT's influence is significantly higher on early-stage companies: 34% of orders were placed with Pre-Seed and Seed stage companies, about 17% with round A, and about 15% with round B and beyond.
These transactions reflect the Ministry of Defense's strategy to strengthen Israeli technological independence and promote the defense-tech ecosystem, as dictated by the ministry's Director General, Major General (res.) Amir Eshel.
Growth of small companies
MAFAT, headed by Dr. Danny Gold, manages active engagement with 322 companies. During the half-year, 33 companies reached the status of a "medium company," receiving orders totaling 331 million shekels. Notably, 15 companies received foreign orders totaling 176 million shekels, bringing the total export deals of Israeli defense startups to 934 million shekels.
The lion's share of this funding comes from the USA, particularly through the CD&I program. For the 2027 fiscal year, the House of Representatives approved a 750 million dollar budget for CD&I, covering missile defense, anti-drone systems, and anti-tunnel technologies.
Technological priorities and challenges
There is significant interest in protection against fiber-optic drones, a threat stemming from Hezbollah. Because these drones are immune to electronic warfare, specialized tools are required, ranging from fiber-cutting to the use of interceptor drones.
Within the "InnoFence" accelerator, 66% of companies have reached a successful Proof of Concept (POC). Colonel Yishai Cohen, head of the Planning, Economics, and Systems Analysis department at MAFAT, states: "We aspire for fundraising to grow further, which will yield real output on the battlefield. We expect 2027 to be a significant year for operational integration. The cycle will close with the 'combat proven' label, enabling companies to scale their sales abroad."
