Michael Cukierman,
Head of Defence Cukierman & Co
Ground breaking technology alone is not enough to make a defence-tech company a successful investment. An investment banker who also serves as a reserve commander in a technological military unit shares what investors are really looking for: a close connection to the battlefield, the ability to adapt rapidly, meaningful barriers to entry, and growth potential beyond the defence market.
Over the past several years, alongside my work as an investment banker specialising in defence-tech companies, I have served in the military reserves as a commander in a technological unit. During my service, I have been exposed to dozens of Israeli startups that brought their technologies into the field to test them under real operational conditions. Some transformed the way military forces operated within days. Others arrived with impressive presentations, only to discover that the gap between the laboratory and the battlefield was far greater than they had anticipated.
The war taught me an important lesson that I now share with investors: on the battlefield, there is no time to wait for the next software release. Threats evolve at an extraordinary pace. A new drone, an emerging electronic warfare capability, or a new operational tactic can render a previously relevant product obsolete within weeks. A company that is not continuously connected to frontline operators, does not gather real-world feedback, and cannot adapt its product quickly will struggle to remain competitive.
That is why, when evaluating a defence-tech company, one of the first questions I ask is: What does your interface with the operational end user look like?
In my view, the most important criterion is not the sophistication of the algorithm or the degree of technological innovation. It is whether the company is solving a genuine operational problem.
Breakthrough technology is essential, but it is not sufficient. Successful companies deeply understand the operational environment, continuously gather feedback from the field, update their products rapidly, and ensure their solutions can be effectively integrated into the hands of end users. In a world where the battlefield can evolve almost weekly, the ability to learn and adapt becomes just as important a competitive advantage as the technology itself.
This is where one of the unique strengths of the Israeli ecosystem becomes evident. Many founders of Israeli defence-tech companies come from operational and technological military units and have personally experienced the challenges they are now trying to solve. They are not developing technology for a hypothetical market; they are building solutions to problems they know firsthand. In many cases, they can also test their technologies under real operational conditions, receive direct feedback from military units, and implement improvements within a short period.
In an environment where threats evolve rapidly, shortening the development and learning cycle is a powerful competitive advantage, and often the difference between a company that leads its market and one that falls behind.
Defence-tech companies are not evaluated solely on the quality of their products, but also on the strength of the competitive moat they build around them. Products can be replicated. Operational expertise, integration with existing defence systems, customer trust, regulatory approvals, and export licences can create much stronger barriers to entry.
From an investor’s perspective, a company that has demonstrated its capabilities in real operational environments and built a business ecosystem that is difficult to replicate is better positioned to become a global market leader.
The Ability to Grow Beyond the Defence Market
Another characteristic I consider highly important is dual-use capability. Although defence markets are expanding rapidly, they remain characterised by long procurement cycles, government budgets, and dependence on political decision-making. Companies whose technologies can also serve civilian markets can diversify their revenue opportunities and reduce their dependence on defence customers.
We are already seeing this trend across multiple industries. Technologies originally developed for the battlefield are increasingly finding applications in healthcare, industrial manufacturing, transportation, and logistics. Acoustic sensors designed to detect threats can also support advanced hearing solutions. Laser systems developed for interception missions can find applications in advanced manufacturing and precision welding. Drone command-and-control platforms can evolve into systems for managing autonomous fleets, logistics operations, and smart infrastructure.
When the same core technology creates value across multiple industries, a company’s potential addressable market expands, creating additional opportunities for long-term growth.
There is no doubt that the defence sector has experienced unprecedented demand in recent years. Defence-tech companies are increasingly becoming acquisition targets for international strategic buyers. This demand comes not only from government customers but also from leading global defence corporations. American and European defence companies with which we work are actively seeking technologies in drones, counter-drone systems, artificial intelligence, sensors, command-and-control platforms, and electronic warfare.
At the same time, more governments recognise that future military superiority will not be achieved solely through aircraft, tanks, or missiles, but also through intelligent technology layers that enhance the capabilities of modern military systems.
Yet even amid strong demand, not every company will become a successful investment. Experience shows that companies capable of creating lasting value combine three essential elements: a clearly defined operational need, the engineering capability to respond rapidly to changing battlefield conditions, and a scalable business model with opportunities beyond military markets.
Turning Innovation into a Sustainable Competitive Advantage
Alongside growing demand lies an interesting paradox. Israeli defence-tech companies are highly sought after by global defence corporations, but much of the interest centres on acquisitions rather than investments. Large defence companies often prefer to acquire technologies once they have been validated, while some foreign venture capital funds remain cautious because of geopolitical uncertainty and the unique characteristics of the sector.
As we have seen in cybersecurity, defence technology is likely to produce both strategic acquisitions and an increasing number of Israeli companies that grow independently into global industry leaders. Both paths can represent success, provided companies pursue them from a position of strength, with proven products, established customers, and sustainable competitive advantages.
Ultimately, a successful investment in defence technology is not about selecting the most advanced technology. It is about identifying companies capable of transforming innovation into a lasting competitive advantage. These are companies that remain closely connected to operational users, adapt quickly to evolving threats, build meaningful barriers to entry, and develop technologies that create value beyond the defence sector.
On the battlefield, I learned that great technology saves lives only when it arrives on time and is adapted to the realities of a constantly changing environment. In the investment world, I have learned that the same principle determines a company’s value.
Technology alone does not create success. Success comes from the ability to learn faster, adapt more quickly, and transform a genuine operational need into a business capable of growing sustainably in global markets for years to come.