Israeli startups shine in the $92 billion cybersecurity market

Cybersecurity has become a dominating topic in modern society, as both individuals and corporations seek ways to protect their data, devices, and privacy. In order to stay one step ahead of hackers and cybercriminals, an entire industry of security-focused startups has arrived on the scene.

Israel has emerged as a leader in the cybersecurity space, with over one billion dollars of investment put into the sector, representing an increase of 47% over the previous year. The country’s position in the market is second to only the United States and is expected to continue its impressive growth pattern.

The Entrepreneurial Hub

To date, there are approximately 450 cybersecurity corporations operating in Israel. Of those, 60 were founded in the past year and have contributed to the startup culture and technological growth. As the industry matures, the number of new companies is expected to shrink.

With Israel gaining the reputation as a major force in cybersecurity expertise, investors are flocking to startups in the area. The average venture capitalist deal in 2018 was $6 million dollars per company. A lot of the money being added to the sector is coming from foreign investors, especially those in America. Parts of Europe have also begun to turn to Israel for cybersecurity needs, with France and the UK both making significant investments.

The growth of the cybersecurity industry in Israel has also led to a boom in employment among related fields. Job numbers have grown by more than 10% in recent years, with around 12,000 Israelis working for cybersecurity firms.

The Internet of Things

Israel has long been a home for technical talent, but for a long time much of that was focused on the software and web industries. The recent growth in cybersecurity can be attributed to the way new companies in Israel have changed their focus to bring hardware and devices into the fold.

The Internet of Things (IoT) is a term used to describe all of the network-connected devices that people choose to install in their home. One of the most common ones is a smart speaker, which is capable of listening to commands and performing actions on the web.

But more traditional appliances have also been affected by the IoT movement. You can now buy coffee machines or lightbulbs that are connected to your home or office wi-fi network and can be controlled from a smartphone. Washing machines and refrigerators are also getting network connectivity, allowing them to report issues to the manufacturer and schedule service appointments automatically.

Every time that a person introduces a new smart device to their home, it carries a certain level of risk. Private data is being captured all the time and is vulnerable to attack by clever hackers. For this reason, much of the growth in Israel’s cybersecurity industry has revolved around data protection and encryption.

Exports and Acquisitions

As mentioned, the growth of cybersecurity expertise in Israel is expected to continue. As the rest of the world continues to realize how valuable that knowledge and talent is, Israeli companies and entrepreneurs should continue to appeal to external groups with money to invest and maybe even more on their mind.

The most mature Israeli cybersecurity firms are now being pursued by foreign organizations who are looking to acquire their resources instead of simply investing in them. This most commonly occurs before the startup reaches the stage of an initial public offering (IPO).

One of the largest and most recent acquisitions involved the company Demisto, which was founded in 2015 and uses machine learning technology to automate cybersecurity incident response and investigation. The company was bought by a U.S. firm, Palo Alto Networks, for $560 million and will become part of its enterprise security division.

The Military Factor

So why exactly has Israel become such a hub of cybersercurity expertise? Many in the industry attribute it to the country’s military presence and emphasis on data protection. Given the unending tensions in the Middle East, nations must take every step possible to defend against computer or internet-based attacks.

Israel is considered to have one of the preeminent military operations worldwide. A large part of that defense focus is placed on cybersecurity to ensure that national information remains safe. The government has not been shy about funneling resources into research and development for digital tools and tactics.

This national focus on cybersecurity appears to have been a direct contributor to the boom in Israeli private corporation growth as, over time, experts in the field shifted from government work into the private sector.

Technological Focus

Current industry advances are seen most often in relation to artificial intelligence (AI) and machine learning (ML), which have been and will continue to be key drivers in the advancement of cybersecurity technology. One example is with a virtual private network (VPN)

VPN Solutions: With the ever-rising level of online privacy threats, using a VPN can expected to become near mandatory in coming years. A VPN uses encryption to create an anonymous, private internet connection. Already in use by around one-fourth of all those who go online, expect that number to continue to increase.

But what does that have to do with AI/ML?

AI/ML are already pushing the idea of what a VPN can do forward as cybersecurity innovators experiment with applying algorithms to the concept of neurorouting. This allows the “smart” VPN to learn and react to the real-time state of internet traffic at any moment in time and choose the best route through the server nearest the destination in order to spend the maximum time possible in the protected VPN network and less on the open internet.

This technology already exists inside the SAP ecosystem via their router which acts as a network connection between SAP systems, both internal and external.

This is just one area of focus. Expect to see many more in the future.

The Bottom Line

With online privacy such an important discussion around the world, there is incredible demand for cybersecurity solutions that offer protection for all our online activities whether it be business-related or everyday functions like banking, shopping, and messaging.

Israel has emerged as a leader in the cybersecurity industry, with significant growth among startup organizations and maturing companies. It’s no surprise the rest of the world finds itself watching Israel to lead the way to a smarter and safer internet.