Israeli cybersecurity firms raised record $814.5 million in 2017

16% of global cybersecurity investment is snagged by Israel’s industry, second only to the US, a report by Start-Up Nation Central says

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Illustrative: A hacker at work. (supershabashnyi, iStock by Getty Images)
Illustrative: A hacker at work. (supershabashnyi, iStock by Getty Images)

In 2017 the Israeli cybersecurity sector solidified its position as a global player, raising $814.5 million in venture capital and private equity investment –a record-breaking amount for the third year in a row, exceeding 2016 investments by 28 percent, according to new data released by Start-Up Nation Central, which tracks the Israeli tech ecosystem.

Israel’s cybersecurity industry comes second only to the US, and accounts for some 16% of overall cybersecurity investments worldwide, slightly increasing its share from 2016, when its share was 15%, the nonprofit organization said in a report released at the start of the Cybertech Conference, which runs Monday through Wednesday in Tel Aviv.

Last year also saw a growth in the activity of foreign investors, who participated in two of every three funding rounds of Israeli cybersecurity companies in 2017. There were 14 exits totaling more than $1.4 billion in 2017, exceeding the number and value of exits by Israeli cybersecurity companies in 2016.

In 2017, the Israeli cybersecurity industry continued to be attractive to multinational companies, 30 of whom have cybersecurity-related R&D centers in Israel in a variety of areas including automotive systems, financial security and internet.

Several new international players entered the local industry last year, opening R&D and innovation centers, including Symantec, TD Bank, Renault, Daimler AG, and Harman. And the number of non-Israeli investors in the sector increased significantly.

In 2017 international investors participated in more funding deals of Israeli cybersecurity firms than did Israeli investors. This is “further proof of the growing recognition of Israel as a global leader in cybersecurity,” the report said. At the same time, there was slightly less activity of Israel-based investors, including angels.

Among the most active investors in 2017 were YL Ventures and JVP Cyber Labs, each with four investments in cybersecurity, and Glilot Capital Partners, Maniv Mobility, Blumberg Capital, and Microsoft Ventures, each with three.

The data shows that the Israeli cybersecurity industry is also becoming more mature. Indeed, the share of early-stage investments out of all investments in cybersecurity declined from 77% in 2016 to 64% in 2017. The average size of investment deals increased in 2017, particularly for seed rounds: $3.6 million on average, almost twice the size of seed rounds in 2016, and exceeding the average size of a seed investment in the US, the data showed.

Internet of Things threats are on the agenda

The increased adoption of the Internet of Things (IoT), with more and more devices connecting to one another, “poses new and significant threats for enterprises, nations, and individuals,” said Nir Falevich, head of the cybersecurity sector at Start-Up Nation Central, who authored the report. “During 2017, Israeli entrepreneurs and investors put many resources in offering solutions to protect IoT networks and devices.”

Indeed, 2017 will be remembered as the year when the cybersecurity sector, both worldwide and Israeli, began to “invest a highly significant effort” in defending IoT and connected devices, as well as in specific IoT segments, including medical devices, automotive systems, and industrial control systems, the report said.

According to data compiled by Start-Up Nation Central, by the end of 2017 there were 420 active cybersecurity companies in Israel, 70 of them new companies. Of those 70, 1 in 3 were in new areas like connected devices. In 2016, some 80 new cybersecurity startups were set up.

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