Is Israeli cyber-security worthy of its global reputation? Are the impressive price tags of recent M&As in the field justified? And will the field of cyber-security continue to be a driving force in the Israeli hi-tech ecosystem?
Over the last several years, we’ve seen a burst of activity in the cyber-security domain here in Israel. Just 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 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 newly founded Israeli cyber startups will succeed, here are seven reasons why cyber-security will continue to be a driving force in the Israeli hi-tech ecosystem for the foreseeable future:
1. 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. As the hackers’ sophistication and appetite for destruction grows, so must our defensive capacities.
2. 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 IDC suggest that the digital universe is doubling every two years and will have multiplied 10-fold from 2013 to 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.
3. 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, cyber-innovation must scramble to keep up.
4. 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.
5. 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 percent lately, representing a huge reservoir of talent that will continue to supply the industry.
6. 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 JVP portfolio company CyActive’s recent acquisition by PayPal, Cyvera by PaloAlto and Trusteer’s acquisition by IBM in 2013 for $800M, to name just a few.
7. 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 that the dangers of cyber-threats are sufficiently clear and present and the talent confronting them sufficiently experienced, focused, and unique to make Israeli cyber-security a safe bet for years to come.
Gadi Tirosh is managing partner at Jerusalem Venture Partners (JVP).