New legislation on cybersecurity cooperation between the US and Israel was included in the National Defense Authorization Act (NDAA) for the Fiscal Year 2022, approved by Congress and signed by President Biden at the end of 2021. This new legislation calls for a US-Israel joint program to support cybersecurity research and development and the demonstration and commercialization of cybersecurity technology.
The legislation received broad, bipartisan support, based on the Congressional view that it will “help us stay ahead of the curve….” and “would help the US develop sophisticated cybersecurity technology and thwart future attacks.”
The legislation provides a total of $30M authorization (not appropriation) for 2022-2026 ($6M per year).
According to a report published by the Israel National Cyber Directorate (INCD), the Israeli cyber security industry raised a record $8.8B in the Year 2021, tripling the amount raised in 2020 ($2.9B) creating 11 new cyber unicorns. Another report by IVC-Meitar shows capital investment in the cybersecurity sector to be almost 20 times higher than it was in 2015.
So, if the Israeli cybersecurity sector is flooded with capital, is there still room for the government to support innovation in this sector?
Should the government support technology areas in which there is already a strong flow of private sector investment? This is a valid question and conventional wisdom has it that the government should focus on important industries that experience “market failures,” such as those that lack private sector investment due to the high risk associated with the technology or the long duration of development. Another view is that the level of government support for technology companies should be “anti-cyclical” meaning that the government should increase support for start-up companies when it is more difficult to raise venture capital funding, such as the years following the sub-prime crisis of 2007-2008.
However, let’s take a closer look at the substantial funding that flowed into Israeli cybersecurity companies in 2021, we see that close to 80% of the investments were in growth-stage companies while only 3% was invested in seed-level companies.
This is especially important when considering government support of innovation, specifically the support of U.S.-Israel collaboration, and examining it within the context of the legislation mentioned above.
The recently launched cybersecurity consortium, part of the US-Israel Energy Center, is an excellent example of US-Israel collaboration in cybersecurity funded by both governments. The consortium is focused on developing and testing new technologies, leveraging advances from both the US and Israel to mitigate cyberattacks, specifically on energy infrastructure. What makes the consortium special is the close cooperation between the academic researchers and industrial partners of both countries. The collaboration includes establishing a knowledge database of cyberattacks, the development of advanced tools and technologies for Information Technology/Operational Technology (IT/OT) monitoring, and the design of control tools that look to achieve resilience and robustness in future architecture.
The US and Israeli governments should further strengthen their cybersecurity partnership by jointly funding innovation and long-term research and development as proposed in the US legislation.