The rise of Israeli Defense Startups - with Aaron Applbaum, GP at Kinetica
The $150 million fund fueling Israel's defense-tech surge.
“When global defense spend goes from two to three trillion, you don’t get bigger militaries — you get a refresh of every platform.”
Aaron Applbaum, co-founder of Kinetica, sat with me to talk about building a new Israeli defense fund at the exact moment that refresh begins — backing founders before they’ve even left the army, in partnership with 8VC.
We get into why October 2023 pulled Israel’s best engineers back into uniform and changed what they wanted to build, and where Israel has a real right to win — from the algorithms behind information warfare to its long lead in aerial defense.
Transcript (lightly edited for clarity and flow) is below.
00:00 — What Kinetica Is Trying to Build
Louise Boucher: It’s great to have you here. It’s been a while since we’ve seen each other in person. I was excited to have you on because you recently announced the launch of Kinetica — a brand-new fund that’s already deployed, I think, more than $20 million across six exciting companies. So set the scene for me: what is Kinetica trying to be that didn’t exist in Israel before you built it?
Aaron Applbaum: First, a quick update — we’ve actually just completed our seventh deal, so we’re moving at a great clip.
The Israeli tech ecosystem has long been a leader in developing next-generation solutions. It’s also a country with compulsory military service: every 18-year-old, male and female, serves. Sometimes that’s in a kinetic capacity, and often it’s in a technological one. Young people get to put their hands on real problems, innovate with effectively unlimited budgets, and solve incredibly difficult problems.
And yet, for some reason, the worlds of defense and deterrence on one side, and tech and innovation on the other, never really crossed paths in Israel. There were a few exceptions, but largely the innovation coming out of the Israeli military was redirected into purely civilian use cases. That’s how Israel became a leader in cybersecurity, fintech, advertising, and gaming.
Then, in October 2023 — a shocking moment in Israeli history — the country was thrust into a devastating, costly, and emotional multi-front war that it still finds itself in. Because the Israeli military is not only compulsory but largely reserve-based, it wasn’t just bright 18-to-25-year-olds who were called up — the entire tech industry descended back into duty all at once. They were suddenly working in the domains of life and death, of national resilience, independence, and security.
When many of these high-quality engineers, entrepreneurs, and founders finished their reserve duty, they found it hard to go back to building interesting but less meaningful things. For the first time, we saw a convergence of the Israeli capacity to innovate, iterate, and build quickly with a deep sense of duty and giving back at the national level. The best engineers and founders started to build in defense.
At the same time, global demand was ballooning — largely because of the Russia-Ukraine war, which in many ways has been even longer and more devastating in human terms than the Israeli conflict. You started to see NATO spend go from 2% toward 5%; the Americans moving from roughly $850 billion toward $1.5 trillion; Japan coming back online for the first time since World War II; and the Middle East thrust into multi-front wars, with Saudi, Emirati, Qatari, and Kuwaiti spend all rising. There was news today that Iran hit a Kuwaiti airport. Nobody is spared from this new reality where you’re responsible for protecting your own borders.
When global spend goes from two to three trillion dollars, you don’t see 30% increases in the size of militaries — you see a refresh in technology, platforms, and capability. So there’s a unique moment: Israel is beginning to produce the supply of next-generation solutions just as the world’s demand for them is surging. If you understand that intersection between supply and demand, and you can build a team that sits right at it, you stand to make a real difference. It’s a generational opportunity to start a new platform.
The United States woke up to this a few years earlier and is now reaping the rewards — the likes of Anduril and Saronic are winning hundred-million- and multi-billion-dollar US government contracts and future-proofing America’s capacity to fight a future war, whether with China or otherwise. We looked at this moment — and Europe got there slightly before we did — and said: now is the time when Israel can and will produce its own Saronics, Shield AIs, Helsings, and Epiruses.
To do that, we had to build the team that could take advantage of the moment. It was very much about local excellence — access to the absolute best and brightest entrepreneurs at the earliest possible moments, often before they’ve even been released from military service — married to global access and reach. So we built meaningful international partnerships: with John Jansen, former head of procurement for the Marine Corps, and Ken Braithwaite, former Secretary of the US Navy.
We also decided we didn’t want to build regional companies with regional capabilities — we wanted to build companies that can play on a global stage. For that reason, we partnered with a sister fund, 8VC, out of Austin and San Francisco, which has scaled many of the American success stories. The founder of 8VC is also a co-founder of Palantir, and he brought on Palantir’s first employee to run their defense business. They incubated Saronic, backed Anduril, and sit on the cap tables of many American success stories. They want access to the Israeli market and have chosen to get it through their relationship with us, so we represent them here in Israel. They have, I believe, in excess of $8 billion under management.
So through local access, global reach, and the ability to form the geometry of capital needed to scale these businesses, we realized we had the right place, the right time, and the right team. We set to work raising the fund about a year ago. We’re well on our way — and that’s really the origin story of Kinetica.
09:10 — How Kinetica Assesses Founders
Louise Boucher: There’s a lot to unpack. Let’s stay close to Kinetica today. I didn’t realize the 8VC relationship was by design — so the answer is very much yes. Coming back to the strength of Israel for defense founders: when I compare it to what I look for here in Europe, you want teams with military or deep tech experience, and a sense of obsession and aggressivity. Everyone building in defense seems to have a certain intensity. So how do you assess teams in Israel? What do you look for?
Aaron Applbaum: This podcast is for publication, so I have to be careful about how deep I go into specific classified units and capabilities — but I’ll net it out as granularly as I can.
One of our partners in Kinetica is the former head of Israeli Special Forces. What’s unique about that role in Israel is that it has three major legs. There’s a kinetic leg — think the American Delta Force or the British SAS. There’s a human-intelligence unit — somewhere between the CIA, FBI, and ground reconnaissance. And there’s a technology unit that services the other two and the rest of the military.
That third pillar is our focus. It’s one of the most selective units in the Israeli military — the goal of almost anyone who doesn’t want to go into combat is to get into this unit, or into 8200, which has become more declassified and is more focused on signals intelligence and cyber. But this other unit, which my partner commanded, does a lot of the hardware innovation: electro-optics, acoustics, ASIC and circuit-board design, reverse-engineering of sophisticated hardware. The best of the best are recruited into it, and many stay — some become lifers. So we’re seeing these engineers before they hit the market. That’s the proprietary nature of our deal flow.
On diligence: at some level it’s alphabet soup — this unit, that unit. But we have access to every commander who led these engineers, every cadet who served under them, every unit they built for. So we understand their capability, their capacity, and how they act under pressure, tight timelines, and relentless customers — skills that translate beautifully into the commercial world.
We also have top-down capability. Another partner, Fred, has worked with the Israeli military-industrial complex his entire career — with Elbit, Rafael, Israel Aerospace Industries, and their European, Italian, and Middle Eastern equivalents. He deals in contracts worth hundreds of millions or billions of dollars, so he understands what a founder or CEO looks like when they have to execute at scale. It’s not just “can they build something” — it’s “can they move product?” Through his relationships, we also know the integrators, buyers, and customers. So we know the B and the G — the business and government buyers.
The two of them combined also have access to the top brass of the Israeli military itself. Understanding the local customer, the global customer, and the builder lets us triangulate a company’s capacity to succeed.
I also have a co-founder, Yoav, who’s an F-16 pilot. One of his roles after graduating Flight Academy was to sit on the panel that assessed and accepted candidates, and later evaluated those who became fighter pilots, navigators, and helicopter pilots. His ability to assess talent — especially around complex missions, technology, and high-pressure scenarios — is second to none. So that’s the 360-degree view we have before we ever pull the trigger on an investment. We can really dig into the bits and bytes of our founding teams.
15:39 — Where Israel Can Win — and Where It Can’t
Louise Boucher: Compared to 8VC, or a fund like Lightspeed — would you say the defense teams you’re vetting in Israel are different from the ones US or European funds are looking for? Different personality traits or experience?
Aaron Applbaum: It’s a really good question. Israel has a right to win globally in certain areas and not others. In some geographies there will be competitors who beat us, and there are certain things for which there’s no reason my team would beat the American equivalent.
Saronic is a great example. The founder, Dino, said America had lost its edge in shipbuilding — it had been outsourced. But once the American government aligned with Silicon Valley, and you add America’s capacity to manufacture at scale — a 350-million-person country, the largest economy in the world, with infinitely more space than Israel — they will buy and equip shipyards and spin up manufacturing that can build entire fleets. Israel is nine million people. It has some decent manufacturing — a bit on the engine side, a bit on the drone side — but Israel will never be a shipbuilding powerhouse. So against an equivalent in Japan or the United States, we’d lose. Israel won’t create a Saronic — or it could, but it wouldn’t win in the long term.
Now take a company we have backed, in the domain of information warfare — a foreign government’s ability to influence an election or sway a population. The classic example: recent polls in Taiwan show that around 30% of young voters would vote to become part of Greater China. China is showing it can take over Taiwan without firing a bullet. How? They own TikTok, young people are on TikTok, and they have the knowledge to manipulate algorithms — whether OpenAI, Anthropic, Reels, X, or TikTok — to sway public opinion.
We backed a company out of 8200 — mathematicians who reverse-engineer these algorithms, understanding every weight, bias, and threshold and how they change over time. If you look at what Israel has built in offensive cyber — and there’s a reason Paragon, NSO, Candiru, and others lead the field — it’s because there’s a critical mass of world-class talent here. It’s not that people out of the NSA can’t build it; it’s that if there’s going to be a Palantir-like product in this domain, Israel can build it. For each of my companies, I can justify why the Israeli version can be a global leader — and it always comes back to what our military is particularly good at.
There are certain functions that will always be localized — you have to sell locally, sometimes manufacture locally, and work with local prime contractors. But even with Israeli IP and Israeli management, you’ll always have a global footprint in our domains.
20:16 — The Autonomous Bet: Subsea Drones
Louise Boucher: Coming back to cyber specifically — I’ve been looking for a company to invest in there, but I always conclude that if someone pulls it off, it’ll be an Israeli company, or at least an Israeli founder in the US. Israel has an edge. And when I look at the hyped categories, it feels like the world is trying to catch up with what Israel has innovated over the last ten years — Iron Dome, intelligence networks, laser and directed-energy. But coming back to Saronic: no, you won’t become a global shipbuilding power, but we’re shifting to autonomous, scalable systems. Maybe Israel actually has an edge there — because with such a small population you can’t rely on huge ships, but you could build thousands of small surface vessels. So maybe you could be a generalist defense exporter after all.
Aaron Applbaum: I couldn’t agree more — you’ve hit the nail on the head. In fact, we’ve voted with our feet and our wallets on exactly that thesis. It’s a great counterpoint to what I said, and an interesting way of thinking about what Israel can contribute even if it won’t build global shipyards and beat Saronic at its own game.
We’ve invested in a globally leading team in the domain of subsea autonomy. Take a one-to-five-billion-dollar submarine — more if it’s nuclear, less if it’s diesel-electric — and ask: why can’t it be smaller and autonomous, but with similar capabilities? Thirty tons of payload, thousands of nautical miles of reach — just take the humans out of it. It takes a decade to design and deliver a submarine. Why can’t you augment what already exists, so your maintenance cycles are longer and you don’t have to use the manned platform as much? And why can’t allied countries that could never own and operate a submarine flotilla have subsea capabilities anyway? Panama has a pretty important canal to protect — why shouldn’t they be able to defend against mines and threats?
So we backed the former head of the Israeli submarine flotilla, a Brigadier General, who partnered with the former CTO of Habana Labs — a two-billion-dollar exit to Intel — and one of Israel’s foremost shipbuilders. The three of them had actually been in a submarine together years ago. One became a general, one made money in private-sector tech, and one went into industry. We brought the band back together to build the future of subsea warfare. The company is still in stealth, so I’ll respect that and not go into too much detail — but it had follow-on financing, and then follow-on to the follow-on, because everyone realized there’s no clear winner in the domain yet, especially around sophisticated sensors, communication protocols, autonomy, and using AI and data. You can’t throw humans at the problem, because Israel doesn’t have enough of them. We think it can be a global leader — a tens-or-hundreds-of-billions-of-dollars outcome.
24:22 — Building the “Impossible Team”
Louise Boucher: You mentioned you put the team together. In defense we look for almost impossible teams — a visionary CEO, someone who’s built the hardware, someone who knows the specific defense domain. Do you sometimes operate at the incubation stage, or is it more relationship-building — you know a CEO, you’re thinking about a CTO, and you put them together? Or is it something more scalable, like an incubator?
Aaron Applbaum: We have both muscles. We can assess an existing team with an existing idea and judge whether they have what it takes to win long-term — that “impossible team” where someone is a deep technologist who’s seen battle, understands scale, can manage R&D, speaks multiple languages, and has the charm to lobby members of Congress. Who are these people? They don’t really exist. We never had those expectations of the big cyber guys — they were nerdy, they sold to nerdy people, and they had big, wonderful, nerdy outcomes. So when we assess a team, we look for that balance: can they build and sell?
When we incubate, here’s a peek into the process. We keep a running list of ideas for companies we think can be large outcomes — everything from certain space technologies to subterranean to spectrum dominance. We also keep a running list of the best of the best, and we label them: CEO, CTO, R&D, “best first employee but not leadership,” “will always need to be told what to do,” and so on. The list grows, and we play matchmaker.
When you and I spoke briefly the other day, I’d just come out of a meeting with someone who is a generational talent — globally, you can count on one or two hands the people who can do what he can. And he would run a company into the ground. He knows it, I know it, everyone who meets him knows it. It’s about finding someone who can be the yin to his yang. We’ve started working with him on “founder dating,” and we think we’ve found someone who’s exceptional in his own right.
It’s a balance, and so far we feel we’ve gotten it right — because one of the hardest things is to correct it later. You tell yourself, “they don’t know how to raise money, but I can do that for them,” or “they can’t scale and motivate, but I can.” We can help, but your DNA on day zero is really important, as you said. We pay particular attention to it. It will undoubtedly be proven that we got some of it wrong — but we’re very happy with where we stand today.
27:58 — Israel as a Global Defense Exporter
Louise Boucher: I agree — the incubation stage is just great for reaching out, meeting amazing people, and partnering them with other amazing people. It’s about aligning all the planets: timeline, level of ambition, risk appetite. It doesn’t really scale, but it’s not meant to — it’s about doing the two, three, or four incubations that are truly relevant and create huge outcomes.
Coming back to Israel as a global defense exporter: it’s a bit of a paradox. Historically there have been great defense products from Israel, but on the global scene it was almost nowhere to be seen. Just before this, by coincidence, I was reading an article saying Israeli defense exports exploded last year, especially in Q1. So is the dam finally breaking? And looking out five years — will the global defense-export landscape change? We’ve also seen South Korea and Turkey exporting more and more. Do you think today’s top five will be replaced?
Aaron Applbaum: Great question. Yes — but not “yes” to the top five being replaced by a whole new top five. I don’t think the United States is going anywhere. That said, the fact that Korea is working on a sixth-generation strike fighter is news — that’s important.
I keep coming back to cybersecurity because it’s an area of Israeli excellence and dominance — Israel is responsible for, I think, in excess of 20% of global cyber spend. For a nine-million-person country, that’s a wild statistic. Yet it’s markedly absent from the “defense deck” — not every defense package has Israeli sensors, command-and-control, software, or effectors. That’s starting to change, especially in areas of Israeli dominance. We’re as good or better at aerial defense as we are at cyber — between David’s Sling, Iron Dome, and Arrow 2 and 3, with 4 and 5 now coming online. We’re hammering out the tenth iteration of our kinks before others have even figured out the initial problems. So there are certain areas where it would be irresponsible not to take the Israeli version.
Look at the recent India-Pakistan conflict: it wasn’t the French jets that brought it to an abrupt end — it was Israeli electronic warfare that ultimately saved India’s bacon. For decades of relative peace, having something local and readily available was good enough. Now you need best-of-breed. And in certain things — coming out of Rafael, Israel Aerospace, and in some cases Elbit, and from the entrepreneurs spinning out to start their own companies — Israel produces best-of-breed.
So I think Israel comes to the fore. You’re already seeing it in the backlog — tens of billions of dollars of it. You’ll also start to see it from other manufacturing powerhouses. Germany was obviously a military power, then very much not for a long time, and now you’re seeing a redirection: a lot of automotive companies have the press shops, R&D facilities, and chemical plants, and once they turn their attention back to defense, I think they’ll bubble back up into global leaders — not just in manufacturing, which they already are, but in defense.
Turkey is interesting — a large exporter, partly because they’ll sell to countries the US or Germany won’t. A lot of their kit doesn’t work as well as advertised, but they iterate quickly. Still, those who can buy the best won’t go with second or third best. So I think you’ll keep seeing America and its F-platforms — the F-16, F-22, F-35. And especially NATO countries trying to minimize reliance, because the US directive has been: start paying your own bills, you can’t rely on us to the same degree. So I think you’ll see some centers of excellence emerge. Japan could very well be on the same trajectory as Germany — a little behind, but they have a China problem.
Louise Boucher: France is technically the world’s second-biggest arms exporter, so this is a big question for us. We have traditional primes like Dassault with the Rafale, and they remain leaders. Can a new startup catch up with them — and can France keep its crown jewels in defense exports? We’ll see.
Aaron Applbaum: By the way — those were the planes the Indians were flying.
34:15 — Closing & a Book Recommendation
Louise Boucher: I know, that’s exactly why I’m thinking about it. I believe it was the first time Rafales were lost in combat. We might look back at this in five years as the moment the world shifted in warfare technology — the signal.
To wrap up: if someone wants to understand the Israeli defense ecosystem a bit more deeply, is there a book you’d recommend?
Aaron Applbaum: Yossi Cohen — the former head of the Mossad — wrote a really good one. It’s called The Sword of Freedom: Israel, Mossad, and the Secret War. He’s a friend.
Louise Boucher: Is it about Israel’s intelligence networks?
Aaron Applbaum: Correct. It won’t give you coverage of the broader military-industrial complex, but it’ll give you insight into the Israeli mindset — the nature of asymmetric warfare, a small country in a tough neighborhood, reliance on unfair competitive advantages, whether that’s robotics, autonomy, big data, resourcefulness, creativity, or a better understanding of supply chains. It’ll help you understand that context and how it spills into everything.
Louise Boucher: Thanks a lot for that — and thanks for your time, Aaron.
Aaron Applbaum: Thank you, Louise. This has been delightful. I hope there’s some usable stuff in there — it was a lot of fun.