Cybersecurity has been widely recognized as one of Israel’s most robust sectors, and I believe rightly so. Statistics from IVC Research Center certainly would back this up: capital raising in cybersecurity reached new heights, with almost $700 million raised in 2016. Although exits themselves may be down, we believe that the vast interest shown by an array of investors and venture capital (VC) funds underlines the renewed confidence in Israel’s many, many cyber companies.
Cybersecurity start-ups are raising more seed capital compared with other Israeli start-ups, according to a “2015 State of the Cyber Nation Report” by the venture capital firm YL Ventures. The report also points to huge increases in later stage funding, and much of this stems, we believe, from the participation of US venture capital firms. Indeed, “most of the Israeli companies working in the cybersector field aim for the American market because it is the most active and has the highest demand for systems in this field,” said Deputy Director-General Lior Konitzki of the Technology Industries Division of the Israel Export and International Cooperation Institute (IEI).
Rapid expansion of Israel’s cybersecurity ecosphere
Venture capital financing has played a key role in the growth of the Israeli cybersecurity sector. According to the IVC report, the Israeli cybersecurity industry has around 430 companies, almost double the 250 in 2006, and almost 20 times the number in 1996. Most of the companies on the scene are new, with many of them currently operating as development laboratories. However, as the IVC report states, “an exceptional proportion” – around half of the cybersecurity companies founded in Israel in the past 20 years – still exist. I have been active in the US and Israeli tech ecosystems for quite some time and find this fact truly remarkable. Survival and expansion of companies often comes down to the financings they attract, again mostly from venture capital firms. The IVC report interestingly also adds that $539 million was raised in 2015, almost ten times more than the $58 million raised in 2010.
One of the fastest growing cyber companies in Israel is Checkmarx
One of the fastest growing cyber companies in Israel, according to global accounting firm Deloitte, is Checkmarx, the leading provider of application security solutions. In January 2017, it is believed to be preparing for an IPO on the Nasdaq. If so, they would be following in the footsteps of Check Point Software Technologies, one of Israel’s global cybersecurity pioneers, which launched on Nasdaq back in 1996. Checkmarx has certainly been checking all the boxes. In the past year, the company has seen major expansion, raising a significant amount of money from players, including Insight Venture Partners, a private equity and VC fund in New York, with one of the best track records of any VC firms worldwide. Its 700 customers include Fortune 500 companies, such as Samsung, Coca Cola, Salesforce.com, and SAP, the US army, as well as five of the world’s 10 largest software houses. Based out of California, Rembrandt Venture Partners is another key VC player which led a significant investment in February 2016, in the Israeli cybersecurity startup enSilo, a company which has developed a real-time data protection platform that focuses on preventing data tampering and exfiltration. This Series A financing also included the US venture capital firm Lightspeed Venture Partners, together with Israeli VC fund, Carmel Ventures.
One of Israel’s leading venture capital firms focusing on cyber-security investments is Jerusalem Venture Partners (JVP), which has built up a host of cybersecurity companies, including CyberArk Software Ltd., which completed an IPO on the Nasdaq in September 2014, the first Israeli cybersecurity company to go public in the US since Radware went public in 1999. In November 2016, JVP was a participant in the investment raised by Israeli cybersecurity company SecBi, which currently plans to launch its debut product, a software solution which automates threat detection and incident investigation.
More collaborations on the cards
Outside of these direct investments in cybersecurity companies, we are also witnessing more collaborations – in the form of syndicates – to create cybersecurity companies to tackle the biggest challenges in the field. For example, since its 2014 launch, Team8, a think tank and venture fund, has brought together companies, including Citigroup, Microsoft Qualcomm, Cisco, AT&T, Accenture, Nokia, global VC firm Bessemer Venture Partners and others, and has raised a very significant amount towards creating cybersecurity companies addressing these issues.
This increased activity and participation of US venture capital funds has not gone unnoticed across the Atlantic where, in late 2016, the US Congress voted by a large majority to promote US-Israel collaboration on cybersecurity research. The United States-Israel Cybersecurity Cooperation Enhancement Act of 2016 will establish a grant program for joint R&D projects focusing on detecting and combatting cyber threats. The United States-Israel Advanced Research Partnership Act also expands a bi-national R&D program run by the US Department of Homeland Security and Israel’s Ministry of Public Security.
These measures, together with the strong interest of global VC firms and the vibrant nature of the Israeli cybersecurity space lead us to expect further growth in 2017.