It is no secret that Israel is a world leader in cybersecurity solutions. According to the National Cyber Bureau in the Prime Minister's Office, Israel exports of cybersecurity solutions totaled $6 billion in 2014 - 8% of the global market's total of $71.7 billion.
North America and Europe (mainly the US and the UK) naturally account for most of this total, but the Asian Pacific region has a much higher growth rate, and the countries leading industrial growth in this region are China and India.
Although Israel is neither the US, the UK, nor China, Bank of America-Merrill Lynch devotes a separate, albeit small, section in its report to Israel's contribution to the global industry, writing, "Israel stands out as a leader in small specialists; due to its political position and history, it has a very focused agenda to produce leading-edge solutions for the military/intelligence community (although, like the UK, there is a long history of its best startups being acquired by larger overseas players, mainly in the US). Israel is considered an international leader in cybersecurity with its "Unit 8200," which is the largest intelligence unit of the Israel Defense Forces (IDF). For instance, in 2014, Israel exported more than $6 billion in cybersecurity products, which was double the total in 2013 (source: 5th Annual International Cybersecurity Conference 2015)."
This is actually the reason why Israel is among the 10 countries best prepared for cyber attacks. A survey by the HCSS company of the preparedness of countries for such attacks according to various criteria gave Israel a general rating of 3, the ninth highest. The US had the highest rating, 3.8, following by the UK (3.6) and the Netherlands (3.5). Israel's rating is higher than that of France (2.8), Russia (1.6), and even China (1.4). According to these figures, Israel has one of the world's lower cybercrime rates: 1%, compared with 23% for the US (the highest) and 9% for China (second highest). Israel's cybercrime rate is the same as that of Argentina and Australia.
The best example of what Bank of America-Merrill Lynch said about Israel is Check Point Software Technologies Ltd. (Nasdaq: CHKP), whose three founders - Gil Shwed, Shlomo Kramer, and Marius Nacht - all served in Unit 8200. Check Point, the flagship of the Israeli cybersecurity industry and Israeli high tech in general, realized what cybersecurity was long before anybody knew what cyberspace was.
Today, 23 years after it was founded, with a $15 billion market cap, Check Point is one of the world's largest public information security companies, and according to Bank of America-Merrill Lynch, its exposure to cyberspace is greater than that of Cisco Systems and Juniper Networks. On Bank of America-Merrill Lynch's list of the 50 companies with exposure to cybersecurity, 15 are classed as having high exposure (in contrast to medium or low exposure). Check Point is one of the 15, along with Israeli company CyberArk Software Inc.(Nasdaq:CYBR) and Palo Alto Networks, a US company founded by Nir Zuk, one of Check Point's first employees.
The uniqueness of Unit 8200 and Check Point's huge success can explain how the cybersecurity niche became one of the leading sectors in the domestic high-tech industry. This niche alone employs 19,000 people, 7% of Israel's entire high-tech labor force.
According to a special report by IVC on the Israeli cybersecurity industry, there are 430 companies operating in the sector in Israel, compared with just over 250 in 2006 (almost double the number a decade later) and 20 in 1996 (20 times as many in 20 years). That sounds like a lot, but most of the companies are very new on the scene, and perhaps the definition of industry should be changed slightly in this case. Of those 430 companies, only 46% have initial revenue, and only 9% have annual revenue of over $10 million. This means that the remaining 45% are still development laboratories for all intents and purposes, i.e. companies whose product is not yet commercial, and may never be commercial.
The IVC report also states that starting in 2000, an average of 52 companies have been founded annually, but the average over the past four years is 66. The peak year, of course, was 2000 76 companies. Only 2013 came close, with 73 companies.
According to that report, half of the cybersecurity companies founded in Israel in the past 20 years still exist. "This is an exceptional proportion, given the survival rates of startups in Israeli high tech as a whole," the report states.
Israeli cybersecurity companies could not have succeeded without financing, consisting mostly of venture capital. According to IVC, while the average first financing round in 2012 raised $2.3 million per company, this had tripled to $6.9 million by 2015.
To highlight the local industry's breakthrough, while "only" 29 Israeli cybersecurity companies raised a total of $65 million in 2012, the totals rose to 78 companies that raised a total of $539 million in 2015, almost 10 times the $58 million raised in 2010. "This puts the cybersecurity niche at the head of the local high-tech industry as an investment instrument," IVC states, adding that the 78 companies that raised capital in 2015 accounted for 20% of all the active companies, twice the ratio in the Israeli high-tech industry as a whole.
Published by Globes [online], Israel business news - www.globes-online.com - on April 4, 2016
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