With cybersecurity investment spiking to never before seen levels, it is easy to become singularly focused on the large amounts of money U.S.-based companies are seeing.
While it is true U.S.-based security firms have received unprecedented levels of funding, Israel—the second-largest cyber startup market in the world—likely also will nearly double total venture dollars raised this year.
Cyber companies in that country have raised about $1.6 billion to date this year, according to Crunchbase data, smashing last year’s record of $1 billion thanks to some huge funding rounds.
“It’s pretty wild right now,” said Jonathan Medved, founder and CEO of Israel-based OurCrowd, a platform with about 20 different cyber investments in that country, such as BioCatch, ThetaRay and Cymptom.
It is important to note that funding number does not take into account some very large rounds by companies–Snyk, which closed a $605 million Series F last month, and Orca Security, which raised a $550 million extended Series C also last month and others–with Israeli roots but have moved their headquarters to the U.S., a very common practice for Israel-based startups when they are seeking to enter the North American market.
The reasons for the uptick in funding in Israel has several layers, but it is important to first understand the country’s history as it relates to cybersecurity.
Israel is not new to cybersecurity. It traditionally has been one of the most fertile countries for cybersecurity startups when one considers its size relative to the U.S. It has produced huge cybersecurity players such as Imperva, CyberArk and possibly most famous in the space Check Point Technologies.
More recently, SentinelOne, which originated in Israel, debuted on the NYSE this summer as the highest-valued cybersecurity IPO ever after raising more than $1.2 billion at a valuation of $8.9 billion.
The interest in the space comes from a heavy emphasis on the sector by the Israeli government. The country’s military is home to the famed Unit 8200. Originally founded as a pure intel unit by the Israel Defense Forces, through the last couple of decades it has become a premier cyber unit and served as a training ground for many cyber entrepreneurs from the country.
Part of the emphasis is due to the attacks the country often sees: Just last week Google published findings by cybersecurity firm VirusTotal that looked at ransomware attacks in 140 countries and found Israel as the most affected country.
The focus on cybersecurity through government and military means has rippled down to the private sector. A multitude of large technology brands and multinational companies have opened research and development offices in the country throughout the years to fix the seemingly unfixable problem of security.
“Israel is just the perfect place,” said Kobi Samboursky, founder and managing partner at Israel-based Glilot Capital Partners, which focuses on cyber and has investments in companies such as Upstream Security, Ermetic and CyberX.
“You have the (military) cyber unit … and you have so many international companies—Microsoft, IBM, Palo Alto Networks, Cisco, GE—that all have operations here,” he said.
Gopi Vaddi, general partner at TCV, whose firm has invested in several cyber firms including Vectra, OneTrust and Devo Technology, said the training and entrepreneurial talent in Israel always make it an attractive place to look for investment in cyber or infrastructure software.
“We think in Israel you have the perfect convergence of academia, defense spending and entrepreneurship,” he said. “We are excited about the opportunities that are originating there just as much as other tech corridors including Berlin, Paris, Boston, Bangalore etc.—outside of the traditional Silicon Valley hub.”
That focus on security has brought an outpouring of venture capital money into startups in the country, especially as cyberattacks continue to increase.
While cyber makes up less than 5 percent of venture money received by U.S.-based companies, more than 20 percent of venture investment in Israel have gone to the country’s cyber, according to Crunchbase data.
Samboursky said part of that increase is due to a maturing venture capital and startup ecosystem just over the last decade.
“Ten years ago, you had a much smaller VC ecosystem here,” he said. “Companies were happy with a half-billion exit. Now people have bigger appetites.”
Part of that is because many people now starting new cybersecurity companies are often seasoned entrepreneurs, not first time founders like a decade ago, Samboursky said. In addition, venture capitalists in the country are also more experienced, often founders themselves, said Samboursky, a serial entrepreneur.
“There’s just more opportunity, more money, more will,” he said.
While often thought of as a smart place to place venture bets on cyber due to lower valuations— as opposed to the high prices in the U.S.—those who look at cyber in Israel agree it has become a more competitive area to invest in.
Vaddi said early-stage dollars continue to flow into Israel, and more Israeli VC firms are springing up to look at early opportunities. Samboursky agreed seed investors have increased in the country, but so have larger growth players—such as Israel-based Qumra Capital—as the ecosystem has matured.
However, Medved said he believes more than 80 percent of venture dollars that come into the country are still from U.S. firms; much from large firms that have helped push Israel-based companies’ valuation much closer to their U.S. brethren.
He does not expect that interest to stop though, especially as cybersecurity becomes not just more important, but more difficult to do.
“Israelis are very good at the hard parts of cyber,” he said. “They are not afraid of the deep tech things—the things that are a little bit out there.”
Cybersecurity is defined by the industries of network security, cloud security and cybersecurity, as according to Crunchbase data. Companies must have their current headquarters in Israel to be considered Israel-based.