It’s a good time to be a cybersecurity company – especially an Israeli one. Over the past two years, Israeli cybersecurity ventures have clocked record-breaking funding numbers. What’s astounding is just how much valuations increased in 2021 – Israeli cybersecurity startups raised $8.84 billion last year, representing triple the $2.75 billion raised in 2020.
With over 500 cybersecurity startups in the region, there are a few significant factors driving Israel’s emergence as the cybersecurity capital of the world. The impact of major global sociopolitical, economic, and health events has influenced the industry significantly. The war in Ukraine, financial worry across global markets, and rapid changes in the nature of work due to COVID-19 have increased visibility for the importance of cybersecurity.
From a historical lens, most cybersecurity founders in Israel are products of the Israeli Defense Force (IDF) Unit 8200, its cybersecurity division comparable to the NSA in the U.S. Unit 8200 addresses real-world cybersecurity issues by creating offensive and defensive solutions as part of Israel’s mandatory military service that all citizens are required to partake in.
Back in 2011, Isaac Ben-Israel founded the National Cyber Bureau (NCB) during Benjamin Netanyahu’s run as Prime Minister following Netanhayhu’s visit to Unit 8200. Since then, there has been a concerted effort from the national government to become the cybersecurity hub of the future. Now, there’s global acceptance that Israel, and Tel Aviv in particular, has become the world’s cybersecurity mecca.
Upon inception, the NCB allowed for the development of private-public partnerships with a unified vision of the State of Israel being known as the globally dominant cybersecurity economy, which arguably, it has.
This societal and cultural shift happened from the top-down, but also from the bottom up: high schools across the nation offer cybersecurity courses as electives, Israel was home to the first cybersecurity PhD program, and there are six dedicated cybersecurity research universities nationwide.
It’s a good time to be a cybersecurity company – especially an Israeli one. Israel’s geopolitical landscape in conjunction with years of purposeful and strategic governmental, public, and private partnerships and initiatives have set the scene for today’s – and tomorrow’s – cybertech companies to catapult to the next level.
Frank Cumella, Partner at Daversa Partners, attended Cyber Week 2022 in Tel Aviv. He said, “From boarding a plane at JFK and leaving behind a North American market riddled with uncertainty, overvalued businesses, and an oncoming correction, to touching down in Tel Aviv where the buzz was palpable and the atmosphere was akin to the North American tech ecosystem of 2012-2014, you could feel in the air that the most innovative years in the history of technology are about to begin.”
The increased value and attention placed on cybersecurity is highlighted by the infusion of capital investment into Israeli tech firms. Such rapid investment patterns have created a massive pool of open roles in the industry, especially for engineers, developers, and material impact executives needed to steer the ship.
These factors are the pillars that make cybersecurity a silver lining in otherwise uncertain times.
“Israel has emerged as a primary vector to start, build, and create category leaders globally in cybersecurity,” said Jason Slattery, a 20-year Partner at Daversa Partners. Slattery initiated the firm’s entrance into the Israeli market well before its recent boom. The industry has evolved significantly over the past two decades.
“A lot has changed,” said Slattery. “The emergence of Cloud coupled with the newfound distributed corporate environment post-covid has created a new wave of cybersecurity challenges; cloud-native cybersecurity companies are emerging and taking the lead in fraud mitigation, DevSecOps, insider threat, attack surface management, and zero trust.”
Global uncertainty has brought visibility to cybersecurity
Working from home, European warfare, and new market norms have increased the need for and visibility of cybersecurity companies.
The COVID-19 pandemic brought with it newly exposed vulnerabilities and often neglected cybersecurity practices became a source of consternation for companies worldwide. Those security risks are further amplified by the global workforce’s stark shift to remote work.
“Millions of employees worldwide have been logging in and working from home as a result of Covid,” said Liran Grinberg, Managing Partner at Team8 Ventures “The only good thing to come from these crises is that they’re drawing attention to the importance of a strong, stable cybersecurity industry.”
Fast forward two years, the impact of the Ukraine/Russia conflict has not only affected global supply chain and inflation leading to fears of an upcoming market downturn, it’s also created inherent cyber risk for businesses and global infrastructure.
According to Grinberg, “Recession means more cyber-crime; the conflict in Russia and Ukraine contributed to a heightened awareness of wartime cyber risk.”
Increases in cyber-crime are well documented. Recent data reports from Claroty showed a 41% increase of cyber-attacks on industrial control systems over the first half of 2021, and Gartner predicts that by 2025, 45% of organizations globally will have experienced attacks on software supply chains.
There have been a number of high-profile cybersecurity attacks that brought significant visibility to these proven and predicted increases. A ransomware attack on Hillel Yaffe Medical Center in Hadera made hospital systems go offline for over a day, forcing doctors to use pen and paper for recordkeeping.
Cyberattacks on Colonial Pipeline, JBS Foods, and the water treatment facility in Oldsmar, Florida, demonstrate the fragility of critical infrastructure and manufacturing environments exposed to the internet.
Governmental institutions are a major source of that attention. An overwhelming focus of cyberattacks on government institutions has compelled countries around the world to increase cyber spending.
President Biden seeks $10.9 billion in cybersecurity funding across civilian government agencies, up 11 percent from his request last year. The U.S. has already officially legislated to ramp up its support for a cybersecurity partnership with Israel, in addition to other cybersecurity infrastructure programs between the two countries.
As a global leader in cyber exports, Israel serves to gain the most from increased spending in cybersecurity from other countries. It already accounts for 20% of Australia’s IT security imports.
Countries are forging new alliances and signing agreements as it pertains to strengthening cybersecurity partnerships.
Investments are pouring into Israeli cybersecurity companies
(In 2021 alone, 33 Israeli companies entered the unicorn club of private firms valued at over $1 billion, according to a report published by Start-Up Nation Central.)
The increased visibility and focus on cyber security has inspired a rush of investment in Israeli cybersecurity companies. In 2021 alone, Israeli tech companies raised $25.6 billion. As part of that, cybersecurity companies broke a record of raising $8.8 billion in funding in over 100 venture capital deals.
While these are stunning numbers, a closer look at investment patterns in the industry explain the faith that investors have in the country’s tech companies.
For one, 40% of all private investments in cyber funding rounds went to Israel in 2021. With this came the emergence of 11 new cyber unicorns, making Israel home to 33% of the world’s cyber unicorns. Leading VC funds investing in Israeli cybersecurity companies include: Cyberstarts led by former Sequoia Capital Partner Gili Raanan, Team8, Glilot Capital, Jerusalem Venture Partners, Norwest, YL Ventures, Capital G, Redpoint Ventures, and Temasek.
Israel has become a globally recognized leader as the hub of the next generation of emerging cybersecurity companies as annual funding is approaching $9-10 billion. In 2021 alone, Israel had four cybersecurity companies with IPOs, signaling global dominance of cybersecurity markets.
SentinelOne is the most recent of the lot to go public, as well as HUB Security. Companies that raised noticeably large rounds include startup Wiz, the bellwether of Israeli cybersecurity companies. Wiz pulled in $400 million across multiple rounds in 2021. Slattery attended Black Hat USA 2022 and noted that as the news of Wiz’s unrivaled growth to $100M ARR in just 18 months, led by CEO and Founder Assaf Rappaport, circulated amongst the attending VCs, founders, and candidates, the buzz was palpable. Orca Security is another example of immense and rapid funding, pulling in over $550 million in separate investments in 2021.
According to Israeli Export Institute data, overall cybersecurity exports from Israel were estimated at $11 billion in 2021.
Venture-backed, hyper growth Israeli companies need top talent
The flood of investment has created more hyper growth companies emerging at the forefront of cybersecurity in Israel than ever before, making attaining top talent increasingly competitive.
Tens-of-thousands of engineer and developer job openings in Tel Aviv demonstrate an unmet need for high caliber talent.
“The biggest challenge companies face is being able to differentiate your company from the rest of the pack,” said Frank Cumella, Partner at Daversa Partners. The ability for Israeli cybersecurity companies to separate themselves from the pack is largely informed by executive leadership.
“Having a team of ‘been there done that’ executives with tier one venture and private equity dollars and a product going after a large market is more important than ever as candidates are putting a tighter set of lenses on these companies,” said Cumella. After attending RSA in San Francisco and Cyber Week in Tel Aviv and having the opportunity to spend time with Israeli cybersecurity founders, operators, and investors, Cumella gained further insight and visibility into the excitement around this ecosystem.
Changing dynamics in the industry and hyper growth place a much higher value on the people leading the way. “Israeli founders and CEOs today are keeping pace – they prioritize culture, mission and execution alongside product differentiation,” Slattery said.
The war on talent among Israeli tech startups highlights the changing landscape of the cybersecurity ecosystem domestically and worldwide. “Israel was once a bastion for startups destined to relocate their headquarters to the U.S.,” said Slattery. “Now, there is enough talent to sustain native growth and augment the go-to-market functions with U.S.-based GTM teams.”