According to Start-Up Nation Central (SNC), there are currently 400 cybersecurity start-ups operating in Israel. In 2018, they raised over $1.2 billion in 96 rounds of funding. That is more money raised than any other vertical market in the Israeli economy. However, as many as 80% of these companies fail to progress from the early stage to mature, high growth companies.
What does this typical growth trajectory indicate? Is it because of a highly competitive market where only a few companies can prosper? Israel is known for its start-up culture – does the country encourage entrepreneurship but not follow through on what is needed to support a business to grow for the long run?
Where creativity is nurtured and encouraged
There is one start-up company for every 1,400 people in Israel. This is the largest number of companies per capita in the world. Every Israeli knows what a start-up is and either knows someone who founded one or worked in one. This entrepreneurial spirit is so embedded within the Israeli economy, society and collective psyche that it has become a defining aspect of the country’s national identity.
Israel is known as “the start-up nation” for a few reasons. The first is the existence of a culture that supports entrepreneurship. The Israeli people, rather adapting to whatever change is on the horizon, are instead quite proactive in shaping their future. There is a cultural acceptance that there might be a failure in efforts to establish a business or new product. That acceptance makes the risk understood and the notion of it less fueled by fear.
Israeli businesspeople are aware that statistically a start-up has a greater chance of failing than succeeding. But, rather than being stopped by the possibility of failure, Israelis are instead motivated to work even harder to avoid it.
The entrepreneurial spirit is also nurtured from a young age. Parents and teachers in other cultures and countries might be more inclined to encourage children to pursue salaried careers at established businesses. In Israel, there is a great inclination to encourage and support innovative thinking and inventiveness.
Israel’s Defence Forces (IDF) continue the encouragement of entrepreneurship. IDF has access to all of Israel’s youth and are able to select the most skilled individuals for their elite technological units. It’s a competitive culture that produces a dedicated student that is constantly in pursuit of excellence and a work ethic that they carry with them throughout the rest of their working lives.
The IDF’s diverse recruits are taught to use the most up-to-date technologies and encouraged to seek new approaches in solving real-world problems, preparing them to spearhead revolutionary solutions in their chosen field and in the rest of the world.
Many of the IDF recruits become commanders before the age of 20. This high level of responsibility at such an early age breeds confidence and the required skillset for founding a business. IDF’s elite intelligence units are a springboard for many of Israel’s most successful IT companies.
Israel’s “do-it-yourself” approach supports it entrepreneurial spirit and success. The constraints that Israeli people have to work against give rise to innovation and flexibility. Israel does not have any natural resources to mine or from which to manufacture tangible goods, and its geographically sequestered location means that even if it did have natural resources to exploit, they would not likely be easily exported.
Software development – conceiving, designing and coding creating systems and applications -provides an export that is in worldwide demand. Israel’s necessity for innovation married with other entrepreneurial qualities of ambition, problem-solving and intellectual diversity, has given rise to a booming tech sector, and cybersecurity in particular.
Growth and change
As the cyberthreat landscape constantly grows and evolves, it follows that the world constantly needs new solutions. Israel’s economic and cultural conditions have enabled cybersecurity to flourish in meeting some of this demand.
Israel is filled with intellectual diversity, dynamism and benefits from the foresight of its entrepreneurs. Their expertise enables them to identify unsolved problems and challenge and begin developing approaches to solve them. This is the path to creating new solutions, new markets and sustain growth.
2018 was a boom year for this innovation-led growth. Israel’s start-ups began to move away from traditional cyber sectors, such as endpoint protection and email security, and looked to evolving fields like cloud security, IoT security, and security for blockchain and cryptocurrency. The network security market, which secured $546 million in funding in 2018, has grown, scaled-up and been monopolized, while IoT and the cloud present new opportunities for the up and coming generation of IDF recruits.
This ability to identify and tap into new market demands can be seen in Israel’s IoT market. In 2018, its 406 companies received $237 million; the fourth highest investment across all verticals. As of June 2019, 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.
This is good news. However, the abundance of companies within certain sectors can also lead to competition for limited resources. With so many aspiring companies competing for the same highly-skilled engineers and developers, it can be difficult to hire the best and the brightest talent.
In response, Israel’s budding cybersecurity start-ups have begun to collaborate to become more powerful, cost effective and survive the tumult of intense market competition in the beginning years. Israel’s tight-knit start-up economy also allows entrepreneurs to work together, share knowledge and use platforms like accelerators and meet-ups to continue to gain skills, knowledge and expand.
Revisiting the statistic that 80% of new businesses fail in Israel, the number of cybersecurity start-ups in Israel grows year-on-year. The desire to succeed and make an impact on the industry is engrained within Israel’s young professionals. Many of these aspiring entrepreneurs will be hired by large corporations and will, at some point, embark on creating new solutions and forming new businesses.
As long as the security demands of the world’s companies continues to grow and change, the trend for pioneering new solutions will continue as well, and Israel’s status as a global cybersecurity powerhouse will continue to flourish.