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Tel Aviv Capital growth engines

Tel Aviv Capital's Growth Engines For 2025

Israel’s Economic & Security Landscape                                                                                               

Allow us to begin with an overview of Israel’s economic and security landscape, alongside its projected influence on the high-tech sector in the coming year. A clearer and more optimistic macroeconomic picture has emerged over recent months. The Bank of Israel anticipates that inflation will remain within its target range, under 3%, for the next 12 months. While some increase may occur in the short term, the outlook suggests a reversal of this trend further down the line. Against this backdrop, the interest rate projections have also become more positive, with discussions underway about potential rate cuts—possibly once, if not twice, in the course of the year.

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From a security standpoint, we foresee the conclusion of the northern border conflict and the continuation of operations in Gaza throughout the year. The northern confrontation was significantly shorter and less expensive than anticipated, resulting in a 70-billion-shekel reduction from our initial estimates. However, since resources for this front were not included in the 2024 budget, macroeconomic stability remains unchanged, without visible improvement. At the same time, reserve forces have been reduced by 70% compared to the third quarter of 2024.

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Budgetary dynamics remain a challenge, with a deficit of 4%-5%, influenced heavily by deliberations in the Knesset and recommendations from the Nagal Committee regarding defense expenditure. Encouragingly, economic indicators are gradually returning to a “normal” state. The return of high-tech professionals from extended reserve duty is expected to bolster the industry’s recovery. These skilled individuals made invaluable contributions during the past year, and their renewed focus on innovation will be crucial in 2025.

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The high-tech sector has also seen promising developments in other areas. European airlines have announced the resumption of flights to Israel in the first quarter of 2025, with U.S. carriers expected to follow soon. This stability in air travel will play a vital role in enabling the sector to maintain operational momentum. Despite the trials faced in 2024, the high-tech industry upheld its activity levels, slightly increasing its GDP contribution while earning further international recognition and investment interest. However, current challenges within the sector stem more from global economic conditions and emerging technologies than local security issues.

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Addressing Core Challenges

Although security conditions have improved, the high-tech sector still grapples with deep-rooted challenges. These include a decrease in newly established companies, excessive concentration in specific domains such as cybersecurity, a funding crisis within local investment frameworks, difficulties achieving profitable exits, and an absence of a cohesive, long-term strategy for areas like artificial intelligence, startup-corporate collaborations, and financing deep-tech ventures. Furthermore, volatile exchange rates for the U.S. dollar continue to impact Israel’s global market competitiveness.

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Global Developments and Implications

The anticipated policies of the Trump administration provide additional context for our strategic focus. A more business-friendly landscape, particularly regarding mergers and acquisitions, could create new opportunities. However, stricter immigration policies and a focus on protecting American resources may present challenges for Israeli companies in the U.S. This dynamic is likely to encourage firms to strengthen their local presence while enhancing their U.S. operations.

 

 

Our 2025 Growth Engines

Over the past year, Tel Aviv Capital has completed its shift toward the technology sector, divesting from most of its financial services holdings. Our efforts are now concentrated on several key growth drivers:

  1. Offshore Software Development – We have established ourselves as the largest company in Israel within this domain, boasting the biggest pool of programmers. Our goal is to significantly increase our market share in this area by the end of 2025.

  2. MedTech – By the close of 2025, we aim to renew our focus on the medtech sector. We are excited to expand our activities and partnerships within this dynamic, rapidly evolving industry.

  3. FinTech – Responding to regulatory changes and shifting market demands, we plan to add more European and Israeli fintech companies to our portfolio by year’s end. It expresses our experience, connections, and expertise in the finance industry.

  4. Export Initiatives - We are collaborating with Israeli Economy Attaches to develop an export arm aimed at European markets for Israeli tech services.

  5. Local Scouting – As we announced recently, we started "hunting" Israeli technology companies through a team of experts, to provide them with representation and distribution services in Israel and Europe.

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Looking Ahead

The year 2025 offers a unique mix of challenges and opportunities. We remain confident in our ability to harness this potential and continue our trajectory of growth and resilience.

On behalf of all of us at Tel Aviv Capital, we extend our sincerest gratitude to our stakeholders for their unwavering trust and dedication. The hurdles we faced in 2024 underscored the enduring strength of our people and our business community.

 

 

Together, we will continue to lead, innovate, and create lasting value in the year ahead.

 

 

Warm regards,

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Tel Aviv Capital Holdings

January 13, 2025

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