Israel’s Cyber Sector Breaks Another Record, Raising $1.5B in Q1

Success builds on booming 2020, when sector attracted $2.9B in capital

The first three months of 2021 saw the Israeli cybersecurity market break another record by raising $1.5 billion in funding.

While other economic sectors have floundered, Israel’s cybersecurity industry has continued to skyrocket, with one record-breaking period chasing the other. First 2019 set a record; the companies raised $1.8 billion in capital.

Then 2020 arrived and another peak was reached. Companies in the industry raised $2.9 billion, almost 70% more than the previous year. Now, 2021’s first quarter has come to a close, and more than half of 2020’s record-breaking total has already been raised.

A string of large deals is behind the eye-popping $1.5 billion that was raised this quarter. The last in the series, declared March 23, was the investment of $210 million in Orca Security, which specializes in cloud security.

“We’re a startup company that supplies security services to companies that use the cloud,” Gil Geron, co-founder and chief product officer of Orca Security, told The Media Line.

Gil Geron, co-founder and chief product officer of Orca Security. (Courtesy Orca Security)

Geron explained that his company’s product replaced previous tools that were terribly time-consuming and ineffective.

“At Orca, we invented a method that allows you to be fully protected in less than a minute,” he said. As companies migrate their data to the cloud – a process encouraged by the pandemic and employees working from home – the need for a security solution is only growing.

The company, which was founded in 2019, already has dozens of clients worldwide, and the latest investment put its value at $1.2 billion.

Earlier in March, Snyk, another Israeli security firm, announced that it had raised $300 million at a company valuation of $4.7 billion. Aqua Security, another company, raised $135 million, with a valuation of more than $1 billion. And the list goes on.

Arik Kleinstein co-founded Israeli venture capital fund Glilot Capital Partners in 2011, and since then, they have focused on the local cybersecurity market.

Arik Kleinstein, co-founder of Glilot Capital Partners. (Courtesy Glilot Capital Partners)

Kleinstein highlighted three factors as standing behind the industry’s success. “First of all, cyber is ever increasing in importance. We’re living in a world that is becoming more and more digitized every year, and there is a lot of money to be made by cyber criminals,” he told The Media Line, explaining that as criminals become more dedicated to cyber-crime, everyone from individuals to governments requires increased protection. Accordingly, demand rises and corporate and government budgets for security products grow.

Every technological trend requires an accompanying security solution, he explained. For example, as IoT (Internet of Things) devices increasingly enter our lives, the need to protect them grows in tandem.

A second reason for the market’s success is unique to Israel: the passage of many young Israelis through army and governmental cyber units, which train them. “You see all of these relatively young people who are highly skilled, who got their training and experience while working for the government, they go out and immediately they want to open their own companies,” Kleinstein said, linking this trend also to the strong local entrepreneurial spirit.

Third come Israel’s serial entrepreneurs. “The more time passes and the more companies grow here, the more [there are] executives and entrepreneurs who are very experienced in launching new cyber companies.”

These experienced entrepreneurs have an easier time creating successful companies not only because of their experience; they are considered less risky by investors, and so have a much easier time raising the funds needed to build a company, he said.

Kleinstein also touched on another development, tied to the previous point, which is contributing to the increased growth: the availability of money looking for investments. “To grow a big company, you need to raise a lot of money” as they require marketing, an expensive undertaking, and “Israel is raising more and more venture capital every year,” he said.

Israel’s cybersecurity industry is responsible for 10% of the country’s exports while employing less than 1% of its workers, according to the Calcalist financial newspaper.

The industry exported products worth $10 billion in 2020. It is central not only on a local scale but is second only to the American cybersecurity sector globally.

Geron, who has been working in the local cybersecurity industry for more than a decade, cited many of the same reasons for the industry’s success. In addition, he pointed to veteran companies such as Check Point Software Technologies, founded in 1993, “which have created a sort of school here for [building] global cyber companies.”

Orca itself was built in part by former employees of large companies such as Check Point and Palo Alto Networks.

One challenge faced by companies is a byproduct of the industry’s success, Geron said. “Because there’s such a focus on this sector in Israel, and because there are so many talented people, there’s an abundance of startups, and companies have to find the way to break through and reach customers, on the doors of which knock hundreds of cyber companies of different sizes, looking to sell their wares.”

As the local market matures, in a shift being seen throughout the high-tech industry, startup companies and entrepreneurs are increasingly looking to scale up and grow rather than sell their firm to a tech giant when the opportunity arises.

Roey Eliyahu, the co-founder and CEO of Salt Security, is one such entrepreneur. The company he founded focuses on securing application programming interfaces (APIs), software components that manage interactions between entities in the digital space. Eliyahu explains that they are responsible, to give a few examples, for ensuring that only we see our bank account information and only we get access to our email inboxes.

Roey Eliyahu, co-founder and CEO of Salt Security. (Courtesy Salt Security)

Nowadays 83% of internet traffic passes through APIs, and Salt Security was the first company to provide a solution for their protection. “When we entered the market, there was no other player, not even one company,” Eliyahu told The Media Line.

Eliyahu ticks many of the boxes of the classic Israeli startup founder. He started programming at a very young age and later joined an IDF cyber unit, “developing cyber systems at scale for the army,” he said. It was there, during his service, that he identified the risks arising from APIs.

Yet, contrary to the stereotypical image of a young startup founder, Eliyahu is not looking to sell. Instead, he and his co-founder Michael Nicosia want to “build a multibillion-dollar company that will go all the way.”

Eliyahu explains that, as first comers to the scene, “we have a clear advantage, and that isn’t something that happens every day.” This advantage, combined with what they identify as a need that will only grow, has informed their decision to hang on, instead of opting for a quicker cash-out in the form of an “exit.” “We see that we don’t have a glass ceiling,” he explained.

Looking ahead, while the market’s rapid growth has created concern that companies are being overvalued and the growth is actually a bubble, Kleinstein is not worried about a crash.

“I am very optimistic,” he said. In the long-term, the need is only going to increase, “and I think that we are going to see some amazing companies growing in the next decade in Israel.”