As many know, Israel has carved out a strong place in the cybersecurity industry, with many companies there playing a prominent role in cyber defense technology, research and development, and data protection. Indeed, Israel has the world’s second-largest cyber market, second only to the United States. To further discuss this topic, I’ll be speaking with my colleague, Einat Meisel, who is head of O’Melveny’s Israel Practice, and is familiar with both the industry and the numerous cross-border transactions involving the area.
Q: Why is Israel a hub for the cybersecurity industry?
A: It makes a lot of sense considering the fact that security has been a social, cultural, and political priority throughout the country’s history. I would also say the creation of the State of Israel was itself an entrepreneurial endeavor. And since its creation, Israel has had to be continually vigilant to handle enemies and threats along its borders and beyond. Protecting Israel from threats at all levels, both on line and off, is a major focus of Israeli governmental strategy. As a result, the military invests heavily in computing technologies, particularly in the intelligence branches.
The largest military unit in the Israel Defense Forces is 8200, Israel’s legendary elite cyber intelligence unit, a high-tech spy agency that is considered by intelligence analysts to be one of the most formidable of its kind in the world. With a culture that closely resembles that of a start-up, soldiers work in small groups, with limited resources, to crack major—possibly existential—problems. The soldiers are encouraged to question and challenge authority. In other words, they are trained to think creatively, honing their ingenuity and innovating thinking, all traits that as alumni they can parlay in new ventures in civilian life.
In addition, the Israeli government strongly supports science education, with multiple research facilities throughout the country focusing on IT and cutting edge technologies. There are also multiple government programs to support and foster start-ups and technology ventures.
Q: How would you describe the cyber industry in Israel?
A: Given the cultural, political and social factors, Israel’s expertise in cyber security has evolved naturally in the areas of the internet and network security, anti-virus software, including antifraud and authentication, data protection, and other cyber defense technologies. In addition, the IoT and automotive security sectors have grown significantly. Indeed Israel has been a pioneer in these areas, with companies like Check Point, which developed one of the first fire wall systems; and CyberArk, a data protection company that now claims as customers approximately15 percent of the Global 2000 and raised $86 million with its 2014 IPO. Other Israeli companies like the cloud security firm Adallom, which Microsoft purchased in 2015 for $250 million; and Rafael, which developed the Iron Dome and more recently an IoT platform designed for the commercial market, continue to do cutting-edge work.
Q: What kinds of products and services are being offered?
There are numerous products and services intended to address a wide gamut of cybersecurity issues, many of them at the forefront of the industry, including biometrics, drone security, mobile data security, and even connectivity technology to prevent attacks on autonomous vehicles.
Q: Is there global interest in Israel’s cybersecurity industry? Are there outside investors?
A: Absolutely. There is tremendous global interest in Israeli cybertech. And despite an international slowdown in cybertech transactions in 2016, Israel’s cybertech market actually grew last year. A record $581 million of capital was raised last year in the space. This amount was second only to the US, and accounted for 15 percent of the total venture capital raised by cybersecurity companies globally. We see investors from around the globe, including the US, the UK, China and many other countries, investing in seed, or Series A and more mature investment rounds.
Multinational corporations have also expanded their presence in Israel in the cyber security sector, and in 2016 they provided more than a third of funding for Israeli startups. Overall, Israel’s cybersecurity sales totaled somewhere in the $3.5 to $4 billion range last year, representing about 20 percent of global private-sector investment in the industry.
In 2016 China’s Huawei bought Hexatier and Volkswagen AG started CyMotive Technologies to provide security solutions for connected cars. In addition, Accenture, a US professional services and consulting company, bought Maglan, an Israeli cybersecurity firm, and launched a new research and development lab in Israel focusing on cybersecurity projects. Likewise, in 2015, the British micro-chip designer Arm Holdings bought Israel’s Sansa Security, which provides Internet of Things (IoT) and mobile trust and security technologies, and is planning to create a new hub there. And in that same year, PayPal, which already had extensive operations in Israel, bought CyActive, which develops predictive malware detection.
Q: Are these transactions by foreign companies feasible in Israel’s legal environment?
A: Transactions are not only feasible but thriving. This is not an accident. Israel is open to foreign investment, and the government actively encourages and supports the inflow of foreign capital. There are few restrictions on foreign investors, no screening of foreign investment and no regulations regarding acquisitions, mergers, and takeovers that differ from those that Israelis otherwise must follow.
In addition, Israel strives to maintain supportive conditions for companies looking to invest in Israel consisting of a reliable legal system to provide investors with rights and remedies, encourage capital and R&D investment, and provide incentives and benefits including grants, reduced tax rates, tax exemptions, and other tax-related benefits.
As a result, Israel offers foreign investors a unique, vibrant business friendly environment.