Can Israel Create More Cyber Unicorns?

Venture Partner, JVP

Five unicorns in the cyber-security realm have been created in Israel: Checkpoint — the mother of all Israeli cyber-security firms – NDS – acquired by Cisco for $5B, one of the country’s largest exits ever—Imperva and CyberArk — both publicly traded companies – and ForeScout.

With just a handful of such cyber giants worldwide, that’s quite an impressive figure, attesting to Israel’s global prowess in the field.

I’ve been fortunate to play a role in two of these exceptional companies – NDS, as a senior executive, and CyberArk as Chairman of the Board. During my tenures, I witnessed firsthand what it means to build out a cyber unicorn from inside the Israeli ecosystem, lessons which may be useful to the next generation of entrepreneurs hoping to gain their companies entrance into this exclusive club.

I witnessed firsthand what it means to build out a cyber unicorn from inside the Israeli ecosystem

But first it may well be worth asking whether it’s even worthwhile striving to build cyber unicorns at all. What’s wrong with creating a swarm of nimble, innovative cyber startups – after all, that’s what we, the “Startup Nation,” have become known for.

According to the recent IVC-Meitar Israeli High Tech Exits 2016 report, a purely financial argument may suffice here. In 2016, there were exits worth $662 million for Israeli cyber startups acquired by other tech companies. But that’s nowhere near the value of a unicorn – certainly far less than the value of an Imperva (currently valuated at around $1.3 billion) or a CyberArk ($1.7 billion).

Unicorns also fuel the virtuous cycle so critical to building out an industry: investors generate excellent returns (i.e. BRM with Checkpoint, Permira with NDS, JVP with CyberArk) and those returns give them the appetite (and the patience) to continue investing, with the goal of creating more significant companies. Unicorns also serve as role models for other entrepreneurs eager to build game-changing companies – many of whom cut their teeth in the industry by working for these cyber unicorns in the first place.

Unicorns also serve as role models for other entrepreneurs eager to build game-changing companies

From a security standpoint, the case is also clear. As long as cybercriminals are creating their own unicorn-type infrastructures, we need equally large, well-funded and well-organized entities to match their muscle, otherwise the good guys will never get the upper hand. Add to the mix the state-sponsored hackers with endless resources, and the need for sizeable, robust cyber companies becomes apparent. 

In addition, combine the exponential rise in the number and sophistication of cyber-attacks and the damage they continue to cause ($400 billion a year, projected to reach $2 trillion by 2019) with the fatigue CISOs are experiencing in the face of these growing threats (and the growing assortment of solutions), and it becomes clear why enterprises are in desperate need of the kind of broad, end-to-end protection that cyber giants can provide.

For all these reasons, creating even more cyber unicorns is crucial to building a formidable security ecosystem. It’s certainly much of the reason that Israel is punching so far out of its cyber weight class.

Strategies for Nurturing Unicorns

So how do we create the next batch of cyber unicorns out of Israel?

1. Identify the next big growth market, then attack it broadly.

At NDS, this was Pay TV. We all remember the days when cable television was in constant threat of being hacked, with fake cable boxes seemingly sold at every corner. Not only did NDS identify this massive threat, but it also created a complete end-to-end solution, keeping in mind not just where hackers would be in one year, but where they may wind up ten years down the road, making the company an indispensable partner to its customers.

2. Marry superior technology with sales and marketing excellence. CyberArk began as a small company, founded by two Jerusalem entrepreneurs, recent graduates of Israeli military intelligence units. But it was only when Udi Mokady became CEO that CyberArk was able to translate its technical superiority into sales and marketing excellence. And the rest – one of 2014’s most successful IPOs – is history. In short, if you want to create a unicorn, it’s not enough just to have unicorn technology, you also have to have unicorn salesmanship powered by unicorn leadership.

3. Create partnerships
Cyber-security companies are jealous about guarding their IP, so it may sound counterintuitive to suggest that cooperation amongst cyber-security companies is beneficial for everyone involved. But again, if hackers have established incredibly high levels of cooperation, then so must those who aim to foil them. CyberArk, for example, launched its “C3” Alliance together with such industry leaders as FireEye, Symantec, Intel Security, and many others to share security best practices to “deliver more valuable insight and threat response to customers.” Because the world is integrated, teaming up with additional players in the value chain to create comprehensive, integrated solutions, is indispensable.

4. Think Wide

These days, profitability matters. Becoming profitable early on allows companies to extend their runway and affords them the stamina to complete the marathon every unicorn ultimately needs to run. But don’t run this race on your own – make sure to find the right partners and investors who will get you to the finish line.

Back to Perspectives