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Defence ministry awards 101 orders to startups/small firms

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Around 50% of anti-drone tech used in the war from

startups

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Some startups accelerating expansion after wartime boost

By Emily Rose

TEL AVIV, Jan 31 (Reuters) - The drone that tracked

Hamas leader Yahya Sinwar and filmed him as he lay dying in

footage beamed around the world last October was made by Israeli

startup Xtend, according to media reports, one of many such

firms to get a boost from Israel's war needs.

Xtend's co-founder and CEO Aviv Shapira declined to comment

on the unsourced reports, but told Reuters his company provides

indoor drones to the Israeli army, which has looked beyond just

major manufacturers for a cutting edge in its assault on Gaza

that followed Hamas' deadly attacks on Israel on Oct. 7, 2023.

Xtend drones integrate artificial intelligence to conduct

high-precision strikes, and can be operated from 9,000

kilometres (5,600 miles) away with minimal human intervention.

"We're actually re-learning how to fight with robots,"

Shapira said in an interview.

The Israeli Defence Force and Israeli defence ministry

declined to comment on the equipment used to target Sinwar.

In Ukraine, startups making drones and other military

technology and equipment have proliferated, and helped it hold

off much larger Russian forces. Small, nimble companies with a

focus on innovation have proved vital in a war where rapid

solutions can trump years of design and product testing.

Startups are a "group of few people that can do something in

weeks", and war creates an urgency for immediately usable

technology, said military expert Isaac Ben-Israel.

Israel already had a thriving startup scene, meaning its

companies may be better placed to capitalise on the wartime

boom, with some already winning orders from abroad and aiming to

shape the battlefield of the future.

In less than a year and a half of war, Xtend has signed a

major contract with Israel's defence ministry, raised $40

million in its second funding round in August, and signed an

$8.8 million contract with the U.S. government, Shapira said.

Sequoia Capital, a U.S. venture capital fund managing around

$85 billion focusing on early-stage investment, returned to

investing in Israel after the Oct. 7 attacks, having previously

not invested in companies there since 2016.

"War gives people experience," Sequoia partner Shawn Mcguire

told Reuters.

High-tech is Israel's economic engine, accounting for 16% of

employment, more than half of exports, a third of income taxes,

and 20% of overall economic output.

'NEW CAPABILITIES'

Xtend's Shapira was carrying his surfboard to the beach on

Oct. 7 when he heard sirens warning of incoming rockets from

Gaza. In less than 12 hours, he had dispatched a fleet of drones

to help search and secure buildings, he said, in the kind of

rapid response essential in emergencies.

Since the start of the war, Israel's defence ministry has

been working with startups "to improve and deploy new

capabilities for our forces in the field," Colonel Nir Weingold,

head of planning, economics and IT at the ministry's Directorate

of Defense Research & Development (DDR&D), told Reuters.

The ministry has a "green path" for selected startups under

which it fast-tracks its licensing process, and said it awarded

orders to 101 startups and small companies to support the war

effort totalling 782 million shekels ($219 million) between Oct.

7, 2023, and the end of 2024.

More than 25 of those startups had transitioned from

development to production due to the war, it said, adding around

50% of anti-drone technology used by Israel's military during

the conflict came from startups.

This collaboration was on display at the first-ever Global

DefenseTech conference organised by the DDR&D with the Blavatnik

Cyber Research Center at Tel Aviv University that showcased

dozens of startups, catching the eye of major multi-nationals.

"War is good for business and Israel has been a major

partner," said Ayal Somech, head of growth and innovation at

Boeing Israel, on a panel at the conference.

Anti-drone technology has been a particular challenge for

Israeli forces as they have faced different hardware in attacks

from Gaza, Hezbollah in Lebanon, Iran, and the Houthis in Yemen.

Lior Segal, the co-founder of Israel's Thirdeye Systems,

which makes advanced warning systems for attack drones, told

Reuters that its contacts with Israel's defence ministry went

from development phase to winning "meaningful contracts" during

the war.

The company, whose shares have risen about 50% since the

start of the conflict, said it now had seven-to-eight product

lines, compared with around three before the war.

On Tuesday, Thirdeye, whose customers include NATO countries

as well as Israel, said it had sold a 30% stake to Emirati

state-owned defence conglomerate EDGE for $10 million, in a rare

public investment by an Emirati firm in Israel.

The investment will help Thirdeye expand into new markets,

Segal said in a statement, though it is contingent on approval

from Israel's defence ministry and other milestones.

($1 = 3.5765 shekels)