20 Itamar says: “Defense-Tech is among the most complex and challenging sectors for investors. It requires deep R&D capabilities, patience, and the ability to navigate stringent regulation and lengthy government procurement processes. For years, private capital has largely steered clear of the field, particularly due to uncertainty, bureaucratic hurdles, and reputational risks. Now, as nations worldwide ramp up defense spending, in response to growing geopolitical tensions, it is increasingly evident that private investment must become a part of the solution.” He adds: “The State must move from a policy of intermittent encouragement to one of true partnerships with the defense-tech ecosystem, offering startups access to tenders, regulatory certainty, and industrial backing. The government funds are a welcome start, but to create a genuine defense-tech industry, Israel needs less bureaucracy and more confidence.” Lior Baruch, partner at Pearl Cohen, points out: “While plenty of ambiguity still surrounds the structure, opportunities and challenges of these anticipated state-guaranteed VCs, we would emphasize one point to note: Compliance with Section 98 of the Israeli Patent Law, which prohibits filing a priority patent application outside of Israel for inventions with possible military or security value, with certain exceptions. Operators in the cyber sector may mistakenly assume this restriction applies only to inventions of an offensive nature (e.g. hacking tools or digital attack methods), but this is not the case. A cyber company filing a patent application in the U.S. could find itself breaching the restriction and facing criminal penalties if it does not first obtain legal clearance in Israel.” “As always in rapidly growing industries, technology develops much faster than related legislation and market understanding of such relevant legislation. Thus, we strongly recommend having experienced advisors on board in this delicate area. An honest mistake (while trying to save resources on advisors) may cost founders the trust of investors and potential clients.” Ya’ara Z. Barnoon, Special Counsel at Pillsbury added: “If the Ministry and DDR&D can shore up support for innovative defense-tech companies via guaranteeing funds that is an overall good thing. However, companies should be aware that any non-U.S. ownership stake and investment may eventually impact regulatory reviews in the U.S. and government stakes can prompt stricter reviews for companies seeking defense contracts.” Ya’ara – who previously served as Chief of Staff and senior counsel in DoD Office of General Counsel, added: “Furthermore, the Ministry and DDR&D
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