During the last decade, Israel’s cybersecurity industry has established itself as a powerful source of technical innovation. The Israeli economy has evolved into a true ecosystem of its own, no longer known solely for its high level of human technology capital created and bred in top army intelligence units.
Israeli companies are already key participants in the global cybersecurity market, with enough funding in this expanding ecosystem to create enormous category leaders and encourage internal M&A. We predicted in last year’s overview of the Israeli cybersecurity ecosystem that the record-breaking rounds of 2020 and marked-up valuations would continue in 2021, but we stunned by the size when we collected and analyzed this year’s data.
In 2021, Israeli cybersecurity companies raised an incredible $8.84 billion, more than three times the amount raised in 2020 ($2.75). Last year, investments spread among 135 rounds, up from 109 in 2020, with 15 businesses getting more than one round of funding. The cybersecurity industry has run out of patience, and a “go big or go home” mentality has taken hold as entrepreneurs work to prepare the basis for unicorn status, multibillion-dollar enterprises, public offerings, and more. In Israel, cybersecurity has become a bifurcated industry where only two sorts of firms are accepted: potential unicorns and real unicorns.
With such early and steadily increasing investments, the sector has adopted a new strategy that benefits the fittest. Who will stay the path and catapult to development and success, and who will seek the quickest departure with little time to languish in limbo, becomes obvious fast. Founders are making their aims very clear in investor boardrooms in order to accomplish this growth. They will need more money to get a head start and, subsequently, to join the unicorn club at breakneck speed. Fortunately, such large sums of money are easily accessible.
Last year, the overall amount raised in seed rounds climbed marginally to $233 million from $203 million in 2020, while Series A rounds increased by 140 percent to $693 million from $288 million the year before. On the other hand, expansion rounds (Series C and above) increased by 300 percent from $1.63 billion in 2020 to $6.46 billion in 2021. Assaf Hefetz, co-founder of Snyk, an Israeli cloud-native application security startup, argues, “[2021] has fundamentally modified the industry’s standards.”
“With so many dangers and so much demand for new solutions, Israeli cybersecurity businesses today have a once-in-a-lifetime potential to grow large and quickly.” The stakes are bigger at the table […] because in such a competitive environment, you have to stand out and fold.” From $5.2 million to $7 million, the average seed round climbed by 35%. The threshold for admission into the market rises as investments grow. In 2021, just 58 new firms formed, compared to 64 in 2020, demonstrating the very competitive and ambitious landscape.
