War can't stop Israeli cyber growth
War can't stop Israeli cyber growth
Israeli cyber startups raised $2.9 billion between January and mid-June, compared to $1.9 billion in all of 2023 and $3.2 billion in 2022. There were also 12 exits in early 2024, compared to 21 in 2023, 16 in 2022, and a record 35 in 2021, according to a report by YL Ventures
In the midst of the war, Israeli cyber is flourishing despite concerns about damage to its image following the severe intelligence failure of October 7. A report by YL Ventures shows that both the rate of capital raising and exits of cyber companies in the first half of 2024 were the highest since 2021. Israeli cyber startups raised $2.9 billion between January and mid-June, compared to $1.9 billion in all of 2023 and $3.2 billion in 2022. If this pace continues, fundraising could approach $6 billion, nearing the 2021 record of $8.8 billion. There were also 12 exits in early 2024, compared to 21 in 2023, 16 in 2022, and a record 35 in 2021.
Cautious optimism
YL Ventures, led by Yoav Leitersdorf and specializing in cyber investments, notes that while the numbers indicate a recovery, caution is necessary. Despite the jump in financial scope, the number of rounds did not increase proportionally: 35 rounds in the first half of 2024 compared to 71 rounds in 2023 and 95 in 2022. This skew is due to massive rounds like Wiz's $1 billion, Island's $175 million, and Sempris' $125 million fundraisings. Early-stage funding, such as Seed and Series A rounds, saw more moderate improvement. Investors prefer mature companies, making it harder for young companies to break through. There were 10 Series C rounds but only 11 Seed rounds and 12 Series A rounds in early 2024, compared to 36 seed rounds and 20 Series A rounds in 2023. The average Seed round size dropped to $7.8 million in early 2024, from $9.8 million in 2023 and $9 million in 2022.
Global trends and local impact
The report notes that despite the war, Israel's trend aligns with the global recovery in the cyber industry, focusing on mature companies. Cyber investors remain hesitant to invest in early rounds, seeking actual revenues. The increase in cyber exits is notable but not necessarily positive for the local ecosystem. In early 2024, 12 cyber startups were sold, compared to 9 in the first half of 2023. The average lifespan until exit shortened to 4.5 years, the lowest in the past four years, with companies being sold earlier and for lower amounts. Of the 12 exits this year, 8 were companies founded in 2021 and 2022. YL expects the trend of rapid, smaller exits to continue in the second half of the year. Interest in Israeli cyber remains high, but raising follow-up rounds is challenging. A positive note is that Israeli companies are increasingly on the buyer's side, such as Armis buying Silk Security for $150 million and Wiz acquiring Gem Security for $350 million.
Promising developments
Another encouraging point from YL's report is the growth in the AI cyber domain. Since the beginning of the year, five Israeli companies have emerged from stealth mode, compared to seven Seed rounds in this category in all of 2023. Notable companies this year include Prompt Security and Aim Security, which raised a second round of $18 million just four months after their first round. YL expects more new companies in this field to be revealed later this year.
