Israeli cyber investments exceed $1 billion for first time in 2018

Today, only American cybersecurity companies surpass Israel's growing cyber field in terms of equity investment.

By EYTAN HALON
Updated: JANUARY 28, 2019 16:07
Prime Minister Benjamin Netanyahu delivers a speech at a Cyber Security Conference in Tel Aviv, Israel January 31, 2017 (photo credit: BAZ RATNER/REUTERS)
Prime Minister Benjamin Netanyahu delivers a speech at a Cyber Security Conference in Tel Aviv, Israel January 31, 2017
(photo credit: BAZ RATNER/REUTERS)
Investments in Israel's thriving cybersecurity industry exceeded $1 billion for the first time in a single year during 2018, a new report published Monday by Start-Up Nation Central has revealed.
The country’s 450 active cybersecurity companies raised a total of $1.19 billion last year, constituting a 47% increase since 2017 and a fourth consecutive record-breaking year of investments. Since 2014, the sector has witnessed a five-fold increase in investments.
 
Today, only American cybersecurity companies surpass Israel's growing cyber field in terms of equity investment, with Israeli industry benefiting from approximately 20% of worldwide venture-backed cyber investments.
The report shows that non-Israeli investors continue to play a dominant role in the Israeli ecosystem, participating in some 65% of the 117 investment deals concluded in 2018. While the majority of foreign investors are America-based venture capital firms, significant funds have also been injected by investors from France, Japan and the United Kingdom.
While fewer cybersecurity start-ups (60) were established in 2018 than in previous years (75 in 2017 and 82 in 2016), the fastest growing sub-sector last year was data protection, reflecting growing global demand for online privacy and the need to comply with the European Union's meticulous General Data Protection Regulation (GDPR) requirements.
Thirteen new data protection start-ups were founded in 2018, focusing on solutions including privacy protection and encryption. The sub-sector's 65 active companies represent 15% of the total cyber industry, and attracted sixteen rounds of investment (14% of the industry total) last year.
"The last few years have been very dramatic for enterprises that are collecting massive amounts of data," Nir Falevich, cyber sector lead at Start-Up Nation Central and author of the report, told The Jerusalem Post.
"This is due to the GDPR regulations, what happened in the US during the 2016 election campaign with Facebook and Cambridge Analytica, and the many massive data breaches that we hear about almost every day," Falevich said.
"All of this creates a huge public debate and enterprises are starting to understand their responsibilities for managing and protecting private data, not only because they fall under new regulations but because they understand there is a real business opportunity for them if they manage the data properly."
The slowdown in start-up formation, Falevich said, reflects a trend of industry maturation seen across all fields of Israeli hi-tech, with Israeli companies remaining private for longer periods before "exiting" in the form of IPOs, mergers and acquisitions, and private-equity buyouts. Accordingly, the average cybersecurity investment deal grew to $6m in 2018 compared to $3.5m in 2017.
He also believes the growth witnessed in the Israeli data protection subsector is likely to continue in the coming years.
"Especially with companies and enterprises increasingly adopting cloud solutions where they can store and process data externally, they will need to add more layers of defense for the data," said Falevich.
"We will definitely see more and more innovative solutions and companies being founded, created and developed. In 2018, the industry started to gain traction ahead of the years to come."