A $125 million bet on Israel’s new generation of defense tech

Israel’s defense industry has long been dominated by giants producing aircraft, missiles and sophisticated military systems. But a newer generation of companies is emerging from a very different corner of the country’s technology ecosystem — startups building drones, artificial intelligence, autonomous systems and sensors, often testing and adapting their products under real-world operational conditions.Now investors are trying to turn that technological momentum into a global business.Protego's co-founders Lital Leshem and Lee Moser (Photo: Adi Eckstein)Protego Ventures has closed its first fund at $125 million, giving the Israeli investment firm fresh capital to back defense companies that have moved beyond the earliest startup stage but have yet to achieve global scale.The fund’s closing comes amid a sharp increase in international interest in defense technology, driven by wars in Ukraine and the Middle East, tensions between China and the West and growing concern among governments about their ability to replenish and modernize military capabilities.Global defense spending has risen significantly over the past decade, while venture capital has increasingly flowed toward companies developing technologies once viewed as outside the mainstream of the startup world. Defense-tech venture deals reached $19.8 billion in the first quarter of 2026, according to figures cited by Protego.For Israel, that shift could prove particularly significant.The country has one of the world’s most developed defense industries, alongside a technology sector that has produced thousands of startups. The two worlds have always overlapped, with veterans of Israeli military technology and intelligence units regularly moving into the private sector. But the wars of recent years have brought that relationship into sharper focus.Young companies have found themselves developing products in close contact with soldiers and defense organizations, sometimes modifying technology in weeks or months rather than navigating the yearslong development and procurement cycles traditionally associated with major weapons programs.“Many of the best defense companies in the world are being built right now, in Israel, under real operational demands,” said Lital Leshem, Protego’s co-founder and managing partner.That environment, she argues, creates an unusually rapid feedback loop between engineers and the people actually using their technology.For investors, however, building a successful defense company presents challenges that have little in common with launching another software startup. Governments are difficult customers, procurement systems are complicated and selling technology abroad can require regulatory approvals, local partners and relationships that take years to develop.Protego was created to focus specifically on that gap.Co-founder Lee Moser said Israeli defense entrepreneurs frequently encountered investors who understood either venture capital or the defense establishment, but not both.“What we kept hearing from founders was that generalist investors didn’t understand their business, and defense-focused investors didn’t understand the Israeli security ecosystem,” she said.The firm is targeting companies that have already demonstrated that their technology works and need capital, industry connections and access to overseas markets to expand.Perhaps the clearest example is XTEND, Protego’s first portfolio company.The Israeli company develops autonomous robotic platforms and drone systems and has supplied technology to the Israel Defense Forces, the U.S. military and customers in several allied countries. Protego led XTEND’s $70 million Series B financing before the company went public on the New York Stock Exchange at a reported $1.5 billion valuation under the ticker XTND.Its trajectory illustrates the investment thesis behind the new fund: find technology developed in Israel and already used in demanding environments, then help the company turn that operational experience into an international business.Protego’s other investments show how broadly the definition of defense technology is expanding.ASIO, another Protego portfolio company, develops navigation and situational-awareness systems designed to keep troops and autonomous platforms operating in environments where GPS signals and conventional communications may be jammed or unavailable. Its technology is intended to help different forces and systems coordinate in contested environments and has been integrated with systems developed by U.S. defense technology company Anduril.Prisma Photonics takes infrastructure that already exists — fiber-optic cables — and effectively turns it into a giant sensor. Using artificial intelligence, the company can monitor cables running alongside pipelines, power networks and secured areas, detecting activity across long distances without installing thousands of individual sensors.Rilian is working on another increasingly important frontier: applying artificial intelligence to specialized operational knowledge. Its systems are intended to capture expertise accumulated by experienced practitioners and make it usable inside mission-controlled environments.Together, the companies reflect a broader transformation taking place in defense. Technologies developed in the commercial world — AI, robotics, computer vision, autonomous navigation and advanced sensors — are increasingly becoming central to military planning.That has also changed who is willing to invest.For years, many mainstream venture capital firms avoided defense companies, in part because of ethical concerns and in part because government procurement did not fit the rapid-growth model favored by Silicon Valley. The deterioration of the global security environment has helped reverse that calculation.Israel offers an especially concentrated version of the trend. Its engineers and entrepreneurs have access to a small domestic market but unusually close exposure to military needs. That can make Israel an effective testing ground, but it also means companies must look abroad if they want to become large businesses.Protego’s next move reflects that reality.With its first fund closed, the firm is preparing a second fund that will expand its investment activity into the United States. It plans to invest in early-growth American defense companies while building deeper ties to the U.S. defense establishment.The strategy also points to a larger change in the relationship between Israel’s technology sector and the global defense market.For decades, Israel exported military hardware and expertise through established defense contractors. The emerging model looks more like the technology industry: small companies, private investors and engineers developing products rapidly, then trying to sell them across multiple countries and markets.Whether that model can consistently produce large global companies remains an open question. Defense procurement is still slow, heavily regulated and deeply political, while technologies that succeed in one battlefield environment do not automatically translate into widespread commercial adoption.But the money moving into the sector suggests investors increasingly believe the opportunity is worth pursuing.Protego’s $125 million fund is one more sign that technology developed for some of the world’s most difficult security problems is no longer being viewed solely as military equipment.It is also becoming an asset class.