Most people grumble about how the government spends their money, but a new report on the Israeli cyber industry shows that money laid out by the Chief Scientist’s Office of the Economy Ministry was indeed well-spent. Released by the IVC Research Center, the report highlights the tight interplay between industry, investors, and the government in turning Israel into a center of cyber-security technology. Indeed, it is second only to the United States, according to Gadi Tirosh, managing partner at Jerusalem Venture Partners, which has been one of the country’s most active investors in cyber-security.

“We have a very unique partnership here that has made Israel into a clear number two in cyber-security,” said Tirosh at a press conference introducing the report. “We have hubs of expertise in which cyber-security experts develop new ideas into companies, supported by the Chief Scientist’s Office, and as those companies grow, venture capital investors get involved. The talent here is world-class and Israeli cyber-security will continue to a big part of the solution to our global cyber-security challenges.”

The most interesting part of the report was not the text, but an accompanying cyber-security industry map that lays out in spider-web map form style exactly how much of an impact the Israeli cyber industry has had on the world – to the extent that Israel over the past two years has been responsible for about 10% of worldwide sales in cyber-security solutions. The map was created by Israeli start-up Weave, which, according to company CEO Or Riegler, clearly shows “the importance of the Chief Scientist, as well as the positions of other players in the industry.”

Jerusalem Venture Partners' Gadi Tirosh (Photo credit: Courtesy)

Jerusalem Venture Partners’ Gadi Tirosh (Photo credit: Courtesy)

The report itself, which was released in advance of this year’s annual Cybertech 2016 event set to take place Tuesday in Tel Aviv, is chock-full of data on the business, and how it has grown. There are currently 173 companies in Israel big enough to be backed by VCs and other major investors. That does not include the hundreds of others that are bootstrapped or relying on other sources of funds; altogether, there are 430 cyber companies currently operating in Israel, the report says, with an average of 52 new cyber startups established annually since 2000.

According to the report, 78 Israeli cyber companies raised $540 million in capital last year, an increase of 20% compared to 2014. In 2015, Israeli cyber exits reached $1.2 billion, an increase of 40% compared to 2014. Since 2011, more than 230 local and foreign investors invested in over 165 Israeli cyber technology startups.

The report also presents interesting data relating to the presence of multinationals in Israel. Today there are nearly 40 foreign R&D centers operating here; in the mid 90’s, there were only 13 such companies.

Economy Ministry chief scientist Avi Hasson (Courtesy)

Economy Ministry chief scientist Avi Hasson (Courtesy)

“Cyber-security is not hype,” said the Economy Ministry’s Chief Scientist Avi Hasson at the event. “Over and over we see how serious the issues are. Over the past several years, the Israeli cyber-security industry has been gaining significance as a central pillar for the development of the hi-tech industry as a whole. In order to bolster the competitive advantage of the Israeli industry in the global market, we are putting an emphasis on a number of areas: support for disruptive solutions with the potential to significantly influence the global cyber market, support for the creation of breakthrough technologies upon which large Israeli companies can be built, financial aid for companies to bridge the gap in the R&D process from proof of concept to working products, and creating integrative support mechanisms for industrial cooperation between firms, led by experienced companies in the field, to create large-scale cyber solutions for existing pain points in the market.”

What that translates into is grants – money supplied by the Chief Scientist’s Office to start-ups for promising research – as well as mentoring, market making (by running events and programs abroad to get the attention of investors and customers), and general hand-holding.

ThetaRay CEO Mark Gazit (Photo credit: Courtesy)

ThetaRay CEO Mark Gazit (Photo credit: Courtesy)

And the system works – not just on paper, but in real life, said Mark Gazit, CEO of ThetaRay, which uses big data to automatically uncover unknown cyber and operational threats. “Our system checks for anomalies both inside and outside a network, evaluating what would be considered ‘normal’ in an organization and what would be anomalous.”

Anomalies could take the form of activities not just within a network, but on activities run by the network – which is exactly what happened in the Stuxnet attack, which wreaked havoc with Iranian centrifuges even though monitors showed that everything was normal. Using its analytics, said Gazit, ThetaRay could uncover attacks like that in real time.

Selling the corporate world on the idea that searching for anomalies was the most effective way to battle hackers wasn’t necessarily easy, but it was here that the the three-pronged system highlighted in the report showed its effectiveness, said Gazit. “We’ve been in business for two and a half years, and now we count among our customers multi-nationals like GE, and many large financial institutions abroad. When I met with the CEOs of these companies, I felt stronger and more confident because of the backing I had from both JVP and the Chief Scientist’s Office.”

The activities of his partners, along with the extensive knowledge garnered by Israeli cyber-tech firms, has provided the world with a much-needed education on how to fight cyber-threats, added Gazit. “The market is much more mature today, and I believe that this multi-pronged approach we have developed in Israel has had a great deal to do with it. We have a lot of expertise that many around the world don’t, and start-ups in Israel are looking to the success of companies like others and hoping to emulate it. The tools for them to succeed, as we did, are definitely there.”