Liron Barak, CEO and co-founder of BitDam, discusses why Israel’s cybersecurity sector has grown so rapidly and how the market has changed as a result.
According to Start-Up Nation Central (SNC), the 400 active cyber security start-ups operating in Israel in 2018 raised over $1.2 billion across 96 rounds of funding; significantly more than any other vertical market in the Israeli economy.
However, as many as 80% of these companies fall at the first, second or third hurdle and fail to progress from early stage seedlings to high growth companies. Is this indicative of a highly competitive market in which only a select few can prosper? Or does Israel’s start-up culture simply foster entrepreneurship but not the commitment to grow a business in the long-term?
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Israel: the start-up nation
In Israel we have 1 start-up for every 1,400 people; the largest number per capita in the world. Everyone - even my grandfather who is over the age of 80 - knows what a start-up is and either knows someone who founded one, worked for one or had an idea for starting one.
This entrepreneurial willing, innovation and desire to create is so embedded within our economy, society and collective psyche that it has become a defining aspect of our national identity.
Israel is known as “the start-up nation” for two key reasons.
Firstly, we have a culture that is absolutely conducive to entrepreneurship. Rather than waiting to adapt to change, the Israeli people are proactive in trying to catalyse and affect it. This owes to the mentality and cultural acceptance that we might fail in our efforts to establish or grow a business or new product.
Every Israeli businessperson is fully aware that their start-up has a far greater chance of failing (80%) than succeeding; knowledge that they wouldn’t enter the market without. However, rather than being inhibited by the possibility of failure, we are motivated to work even harder to evade it.
This entrepreneurial mentality is also nurtured from a very young age. Whereas parents and teachers in other cultures and countries might (understandably) encourage their pupils and children to pursue stable salaried careers, we are more inclined to promote innovative thinking and creativity.
Through intensive training programs, Israel’s Defence Forces (IDF) continue this cultivation of entrepreneurship. With access to all the young people in Israel, they are able to select the most skilled individuals for their elite technological units. This competitive culture breeds excellence and dedication, which later transcends their professional lives.
Within these units, diverse recruits are educated in utilising the latest technologies and conjuring new approaches to solving real-world problems, which prepares them not only for careers in cyber security, but to pioneer vital solutions in the field and wider world.
In addition, many of the recruits become commanders when they are less than 20 years old, managing soldiers and projects. This high level of responsibility at such an early age engenders the confidence and skillset required when founding their own businesses. Just look at IDF’s elite intelligence units, which have acted as a springboard for dozens of Israel’s most successful IT companies.
The second factor that has given rise to our “do-it-yourself” culture are the constraints that Israeli people have to work against. We don’t have any “real” natural resources to mine or manufacture tangible goods from, and our geographically sequestered location means that, even if we did have fruitful primary and secondary sectors, we wouldn’t be able to optimise it through an export market. This means that we have no choice, and know no other way, but to make something out of nothing.
Software development – conceiving, designing and coding to create incorporeal systems and applications - has given us the opportunity to do just this. This necessity for innovativeness, teamed with other entrepreneurial qualities of ambition, problem-solving and intellectual diversity, has given rise to our booming tech sector, and cyber security in particular.
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Rapid growth means rapid change
As the cyberthreat landscape expands and evolves, the world needs new solutions. Israel’s conducive economic and cultural conditions have enabled its cyber security industry to flourish in meeting some of this demand.
Largely, our ability to do so owes to the intellectual diversity, dynamism and prescience of our entrepreneurs. Their expertise enables them to quickly identify unsolved problems (or associated challenges) and begin developing an approach to solve it. This allows us to pioneer new solutions, create new markets and sustain growth.
This innovation-led growth boomed in 2018. Moving away from “traditional” cyber sectors, such as endpoint protection and email security, Israel’s start-ups began to embrace nascent fields, such as cloud security, IoT (Internet of Things) security and security for blockchain and cryptocurrency.
Whereas the likes of the network security market, which secured $546 million in funding in 2018, have grown, scaled-up and been monopolised, the worlds of IoT and the cloud present new demands and new opportunities for the current generation of IDF recruits.
This ability to identify and tap into new and unresolved market demands is best exemplified by Israel’s IoT market. In 2018, its 406 companies received $237 million; the fourth highest investment across all verticals. So far this year, IoT has received well over half of that figure, taking the number one spot for the highest amount of investment for a single industry in the Israeli economy.
However, the proliferation of companies within specific sectors can also lead to high levels of competition for limited resources. With so many aspiring companies competing for the same highly-skilled engineers and developers, it can be difficult to hire enough, or the “right,” talent at an affordable price.
To overcome this, many of Israel’s budding cyber security start-ups collaborate to become more powerful, cost effective and survive the tribulations of intense market competition. Israel’s tight-knit start-up economy also allows entrepreneurs to consult with one another and utilise platforms like accelerators and meet-ups to learn and grow.
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Looking to the future
In any economy driven by entrepreneurial willing, innovation and risk-taking, high levels of competition and failure or acquisition, “sink or swim” are inevitable. Despite the fact that 80% of the new businesses fail, the number of cyber security start-ups in Israel grows year-on-year.
This is because technophilia, and the desire to succeed and make an impact on the industry, is engrained within Israel’s talented young professionals. Many entrepreneurs that are absorbed by the bigger corporations embark on finding new solutions and forming new businesses.
As long as the global threatscape continues to grow and change, this trend for pioneering new solutions and meeting market demands will likely continue, and Israel’s status as a global cyber security powerhouse will become even greater.