Is the “Startup Nation” truly a “Cyber Nation?”

Gadi Tirosh of JVP counts 7 reasons why investing in Israeli cyber-security will continue to storm the world

Is the “Startup Nation” truly a “Cyber Nation?”
Is Israeli cyber-security worthy of its global reputation? Are the impressive price tags of recent M&A’s in the field justified? Will the field of cyber-security continue to be a driving force in the Israeli hi-tech ecosystem? In short, is the “Startup Nation” truly a “Cyber Nation?”

Over the last several years there has been a burst of activity in the cyber-security domain here in Israel. In the past three years, we at JVP have looked at some 270 cyber companies (almost 100 in the past year alone) from a variety of areas in the field, including network security, next generation firewalls, Mobile/BYOD and others.

But many in the international investment community are asking themselves whether cyber is simply overhyped, whether this type of growth is sustainable, and whether we are in fact living in a “cyber-bubble.” 

Though not all of newly founded Israeli cyber startups will succeed, here are 7 reasons why cyber-security will continue to be a driving force in the Israeli hi tech ecosystem for the foreseeable future:

Threats are Mounting – Target, Sony, JP Morgan, Home Depot… cyber-attacks on enterprise and government institutions continue to grow in number, scope, capacity, degree of evasiveness, malicious intent and level of damage. Israel’s own e-government site is one of the most highly attacked sites in the world, a phenomenon which spiked dramatically over this summer’s Operation Protective Edge in Gaza. As the hackers’ sophistication and appetite for destruction grows, so must our defensive capacities.

Data is Exploding – As the amount of data that businesses manage expands exponentially, there is simply much more critical data to steal and therefore, more data to protect – and that number will only rise. Recent studies by the IDC suggest that the digital universe is doubling in size every two years and will multiply 10-fold between 2013-2020 – from 4.4 trillion gigabytes to 44 trillion gigabytes. Soon, we will be creating so much data per second that scientists will run out of words to describe it. 

Access is Expanding – As enterprise data grows, so do the ways we access it: from mobile devices to The Cloud to the Internet of Things to Wearables, etc. As the sensitive frontlines of data access continue to expand to a dizzying degree, cyber-innovation must scramble to keep up.

International Excellence – We don’t see emerging hi-tech hubs such as India or China creating credible cyber-defensive solutions in the foreseeable future. That is why the Israeli cyber-security ecosystem will continue to enjoy its unique competitive advantage for years to come.

Talent Pool – Both the Israeli academia and military continue to put cyber-security at the top of their priorities, and both of those institutions will continue to generate unique, experienced, world-class talent for years to come. Repeat entrepreneurs in the cyber domain have also risen by some 20% lately, representing a huge reservoir of talent which will continue to supply the industry. 

The Buys – The surge of mergers and acquisitions in the cyber arena, specifically of Israeli companies, will continue to drive more entrepreneurs and investors to invest their creativity and cash establishing more and more interesting, ground-breaking companies. The list is expansive and growing, including CyActive’s recent acquisition by PayPal, PaloAlto by Civera and Trusteer’s acquisition by IBM in 2013 for $800M, to name just a few. 

Scale-up Nation – The last couple of years have demonstrated that significant public companies are being created in the cyber security space in Israel, from Imperva to Varonis to the most successful Israeli IPO of 2014 – CyberArk, in which JVP was the leading investor.  

So for investors and entrepreneurs who are hesitant about putting their time, money and energy into Israeli cyber-security companies, rest assured, the dangers are sufficiently clear and present and the talent sufficiently experienced, focused and unique to make Israeli cyber-security a safe bet for years to come.   

Gadi Tirosh is a Managing Partner at Jerusalem Venture Partners (JVP).

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