Food tech firms struggle to survive as war disrupts Israel’s north
The shutdown of labs and displaced workers have created a ‘big problem’ for a sector that needs stability and years of product development, while discussions over investments stall
As war broke out on October 7 last year, Super Natural, a food tech startup in Kiryat Shmona near the northern Lebanese border, had just delivered its first shipment of vegetable-based chips to potential clients in the United States. The timing could not have been worse. When rockets and drones by the Hezbollah terror group began raining down on Israel’s north on October 8 prompting widespread evacuations, the startup’s newly established production plant had to shut down, halting the company’s US launch.
“We realized we couldn’t support the market,” said Gilad Aharonson, CEO and co-founder of the maker of Super Natural snacks, which preserves the benefits of vegetables and legumes while removing empty carbohydrates to create healthier snacks.
Production has gradually resumed, with only three to four employees accessing the plant instead of the pre-war 10. “My partner and I work every day under fire,” Aharonson said, as the two founders insist on keeping the plant operational to fill the orders.
On October 7, 2023, Hamas terrorists entered Israel from the Gaza Strip, killing, some 1,200 people, mostly civilians, and kidnapping 251 to the Strip. In a show of solidarity with Hamas, Iran-backed Hezbollah in Lebanon began barraging Israel’s north with rockets and drones the next day. The escalating conflict on multiple fronts, now Israel’s longest war at one year with no end in sight, has disrupted not just production, but also Super Natural’s strategy and investment plans. The company has shifted its focus to selling products in Israeli health stores rather than globally.
The war “actually halted our life cycle,” Aharonson said.
The war’s impact on Israel’s economy, including its tech sector, is vast. The country’s fledgling but fast-growing food tech industry may be among the casualties. About one-third of the 280 active food tech startups (excluding agri-tech firms) were based in Israel’s now-ravaged north, part of a 2018 national initiative to transform the region into a hub for food and agricultural innovation.
Food tech is an innovative sector encompassing everything from smart agriculture to new methods of food delivery, distribution, and payment, as well as healthier food options and alternative proteins. The global food tech market was valued at $184 billion in 2023 and is expected to reach $516 billion by 2034, according to a report by Precedence Research.
The diverse climate of Israel’s north with its agriculturally based economy and the presence of academic and research institutes like the Tel Hai Academic College and the Migal Research Institute, made the area fertile ground for a food tech scene. Over the years, the establishment of a food tech incubator and an innovation center in Kiryat Shmona, along with incentives and collaborations between research centers, industrial partners, and municipalities, contributed to an “absolutely successful” north-based food tech hub, said Alon Turkaspa, agrifood tech sector lead at nonprofit Startup Nation Central (SNC).
Then, on October 7, war struck.
Fresh Start, a food tech incubator in Kiryat Shmona, has invested in 12 startups ranging from sugar reduction technologies to fermentation and cultivated meat and fish since it started operations in January 2020. The incubator invests, provides office space, and offers a support system for the startups, which graduate after two years.
“The best part was that those companies that completed their incubation period — two years — all chose to remain in the area,” said Fresh Start CEO Noga Sela Shalev in a phone interview. “They employed local workers.”
“On October 8, when we understood that also the north needed evacuating, there was a marathon to relocate the workers — finding places for them to move to, ensuring they could continue to work,” said Sela Shalev. “We found alternative infrastructure for each one and made sure all equipment was available, and that they all found a new place and continued operations.”
The incubator continues to work and invest, she said, approving a new startup and waiting on another two.
“We’re not there physically, but… we continue to work.”
A September survey by SNC sent to about 60 tech companies based in the north (close to the borders) has shown that only 45 percent are fully operational, while 41% had to relocate their operations.
Sea2Cell, a developer of cultivated fish products set up in late 2021, was one of the Fresh Start startups that relocated. Workers came to the labs to move their equipment.
“We took some things, and I wanted to take the paintings, but… my partner said, ‘Leave them, we will be back in two weeks,’” said Sea2Cell CEO Orna Harel, in a phone interview. “Eventually, we took everything out.”
Sea2Cell is now renting premises in Yokneam, which has also come under fire as the fighting with Hezbollah intensified over the past two weeks and Israeli airstrikes wiped out most of Hezbollah’s leadership in repeated strikes, culminating in the IDF killing longtime Hezbollah leader Hassan Nasrallah.
Moving an agrifood company is not as simple as moving a purely software-based one that only requires a worker and a computer, explained SNC’s agrifood tech sector lead Turkaspa. Agrifood startups need labs, testing sites, and infrastructure for research and development.
Some projects also require specific climates. “Some experiments you can’t move,” he said. If you do, “you go back a year.”
Most Israeli startups in the sector are in early stages of development. Many raised funds in the boom years of 2021 and 2022 to accelerate development to start commercialization and marketing in the coming years.
“These were the years where it was supposed to happen,” said Turkaspa. “And now, it has stopped.”
Israeli startups in the agrifood sector raised $300 million in capital in 2023, comparable to 2020 levels but well below the $900 million raised in 2021 and 2022, during global hype around cultivated meat and alternative proteins, according to SNC data.
Israel was the second-largest recipient of alternative protein investments globally between 2014 and 2023, trailing only the US. In 2022, 25% of private investments in cultivated meat went to Israeli companies, according to a World Economic Forum white paper from May 2024.
Last year was challenging for tech firms worldwide, including the global food tech sector, which saw a 56% drop in investments between 2022 and 2023, according to data by DigitalFoodLab. Prime Minister Benjamin Netanyahu’s proposed judicial reform in 2023 and the October 7 war have compounded the challenges for the Israeli tech sector, explained Turkaspa.
Food tech investors, who are in it for the long term, expect a stable environment for their investments, Turkaspa said. The start of the war, with it the shutdown of labs and displaced workers, has created a “big problem” for a sector that requires stability and several years of product development.
To succeed, food tech firms need investor funds as well as cooperation and partnerships with global food conglomerates, who are highly attuned to consumer sentiment which has increasingly turned anti-Israel because of the Gaza war, said Turkaspa.
The uncertainty about Israeli startups’ ability to continue operating and the global anti-Israel backlash are causing investors and potential partners to hesitate.
“The… very large companies are taking their time in engaging right now with Israeli startups,” Turkaspa said. There have been “definitely cases of big companies halting discussions when investments were supposed to happen.”
The SNC survey shows that 69% of tech companies in northern Israel are concerned about their ability to secure adequate funding in the coming year.
Both Super Natural and Sea2Cell have seen their investment talks falter.
On the eve of the war, the snack maker had an agreement in principle with investors to finance a pilot in the US, with one investor seeking exclusivity for the US activity, said CEO Aharonson. “The reality of the war halted all of these planned investments, and of course new investors are waiting for stability.”
Another investor recently told Aharonson they were willing to invest on the condition that all company operations, R&D and production be moved to the US. Aharonson declined.
“We are not moving from Kiryat Shmona,” he said, adding that he and his co-founder Zemer Sat, both born and raised in northern Israel, are working on an alternative plan to make things work with the new investor.
“This is our country, this is our reality, we are not budging, not folding,” he said.
Similarly, Sea2Cell was in talks with three investors in 2023 to raise funds, said Harel.
“Because of the uncertainty of the judicial overhaul they told me that they prefer to wait until the end of the year. Then the war started, and they disappeared. They were specialized VCs… and were enthusiastic about what we were doing and our advanced technologies,” she said.
Sea2Cell is now looking to collaborate with global and local companies to speed up development and time to market. “Cultivated fish is the future,” Harel said. “But the challenges are huge, and we need to join forces.”
Harel is determined to return to Kiryat Shmona once conditions allow.
“We were very invested in this region, and we will want to go back,” Harel said. “But the state will have to help, come up with a plan to assist. As soon as we can return, we will. I am optimistic.”
“We are not giving up… There is a whole sector — food tech — that has so much potential. And we must support this.”
The SNC survey revealed that 20% of the northern startups that relocated said they have no plans to return, while 70% are undecided.
Sela Shalev, CEO of the Fresh Start incubator, remains optimistic about Israel’s food tech sector continuing to lead in global innovation, despite the current hardships.
“It is very hard in these times to lift our heads and see it,” she admitted.
Shalev stressed the importance of ensuring there will be a place to return to, highlighting that efforts are ongoing to prepare for the day when companies and people can return to the north.
“It’s crucial to send a message of hope and not succumb to despair,” she said. “Things are still happening there… everything is in preparation for the day we can go back.”
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