VC firm YL Ventures launches $400m fund to back Israeli cybersecurity startups

Israeli-American VC firm YL Ventures announced the launch of a new fund on Tuesday, the company’s fifth, to back Israel’s cybersecurity sector.

The $400 million fund will be used to lead seed rounds into about three startups per year, and invest in follow-on rounds, the firm said.

YL Ventures said the oversubscribed fund was “the largest seed-stage cybersecurity-focused fund ever raised.”

The firm’s portfolio companies include cybersecurity unicorns Axonius and Orca Security, as well as Twistlock (acquired by Palo Alto Networks), Medigate (acquired by Softbank-backed Claroty), Hexadite (acquired by Microsoft) and FireLayers (acquired by Proofpoint).

“For the past 15 years, our primary priority has been providing our portfolio companies with everything they need from the very beginning in order to break into the global market,” said Yoav Leitersdorf, managing partner at YL Ventures, in a company statement. “We plant the first seed in these budding startups and then continue to support them as they blossom, succeed and shatter their categories.

“Our resources and expertise in the cybersecurity industry, reinforced by YLV Fund V, will serve to cultivate the next generation of Israeli top-tier talent from seed to lead,” added Leitersdorf.

In addition to Tel Aviv, YL Ventures has offices in San Francisco and New York. The new fund, dubbed YLV V, brings the company’s total capital under management to $800 million, according to the announcement.

Israel’s cybersecurity sector is the strongest industry in the local tech ecosystem, with startups raising a record $8.8 billion in 2021. Eleven new cybersecurity unicorns, or private companies valued at $1 billion or more, were minted in 2021, according to the Israel National Cyber Directorate.

The annual 2021 funding figure accounts for 40% of the total funds raised by cybersecurity firms worldwide last year, according to the data.

Overall cybersecurity exports from Israel were estimated at $11 billion in 2021, according to Israeli Export Institute data.

Earlier this year, a YL Ventures report noted that at least 15 Israeli cybersecurity startups also raised more than one funding round in 2021.

The report found that most of the funding in 2021 went to growth-stage cybersecurity companies, with about $6 billion of the annual total allocated for Series C rounds and above. This is compared to $1.63 billion for later rounds in 2020.

Interest and funding for early-stage rounds, across sectors, have been on the decline for several years.