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Israeli Cybersecurity Market Draws Increased Investment

There are now more than 300 cybersecurity companies operating in Israel, making it an industry second only to the US in size.

According to the 2015 State of the Cyber Nation Report from Yoav Leitersdorf, Ofer Schreiber and Iren Reznikov of seed investors YL Ventures, in 2014, exports by Israeli cybersecurity companies reached $6 billion, equating to approximately 10% of the global cybersecurity market. That percentage has increased, as the number of startups grew almost 25% since then, with the founding of 81 new cybersecurity startups.

“These cybersecurity startups hold a premium position within the investment ecosystem, making up 16% of all the investments completed in Israel, which is more than double the share of investment that cybersecurity startups receive globally,” the authors said.

And, Israeli startups are raising capital. To date, approximately 15% of all startups established in 2015 have already secured seed funding, raising on an average $2.5 million. This represents a 25% increase over the average $2 million seed raised by startups in 2014.

“This increase may be related to the growing participation of US venture capital (VC) firms, who have traditionally invested in companies in later stages,” the report explained. “The average seed round in 2015 for a cybersecurity company with participation by a US VC was approximately $3.7 million.”

The report also found that an increase in capital funding was experienced across all investment stages, but the largest increases occurred predominantly in B and later rounds.

In fact, 2015 saw a 218% increase in “B and above” cybersecurity funding over 2014, to reach a total of $360 million. Checkmarx, Cybereason, Illusive Networks and SentinelOne are examples of companies that raised substantial amounts of capital in 2015.

The most funded fields in 2015, across all stages, were: Mobile security (Zimperium, Skycure, AppDome); deception (TrapX, Cymmetria, Perception Point); and web security (Namogoo, PerimeterX).

The 2014-2015 data shows that Israeli cybersecurity entrepreneurs are specializing in advanced persistent threats (APT), web, mobile and cloud security fields. While 2014 was dominated by mobile security and incident response, with startups like Hexadite, SecBI and Secdo, 2015 was the year of the internet of things (IoT) security, with a special emphasis on automotive security.

“Since mobile security was a hot field in 2014 and then a top raising field in 2015, we can predict that 2016 will be an IoT Security funding year,” the analysis found.

2015 also witnessed the emergence of container security startups, such as Twistlock and others, who successfully secured seed funding.

“The world’s attention is on the cybersecurity industry, as cyber threats and hackers continue to evolve and perpetrate devastating breaches,” the authors said. “Everyone wants to avoid being the next headline, which means they need new and innovative ways to establish an effective defense. Israeli cybersecurity entrepreneurs continue to innovate and place the Israeli cybersecurity industry on the front lines of this war. The statistics show that Israel is a vibrant market, fostering companies that will be changing the global cybersecurity landscape long into the future.”

Photo © Alexandra Mijatovic

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