2020 was a record year for Israel’s security startup ecosystem

From COVID-19’s curve to election polls, public temperature checks to stimulus checks, 2020 was dominated by numbers — the guiding compass of any self-respecting venture capital investor.

As a VC exclusively focused on investments in Israeli cybersecurity, the numbers that guide us have become some of the most interesting to watch over the course of the past year.

The start of a new year presents the perfect opportunity to reflect on the annual performance of Israel’s cybersecurity ecosystem and prepare for what the next twelve months of innovation will bring. With the global cybersecurity market outperforming this year’s panic-stricken expectations, we carefully combed through the figures to see how Israel’s market, its strongest performer, compared — and predict what it has in store.

The cybersecurity market continues to draw the confidence of investors, who appear to recognize its heightened importance during times of crisis.

The “cyber nation” not only remained strong throughout the pandemic, but even saw a rise in fundraising, especially around application and cloud security, following the emergence of remote workflow security gaps brought on by social distancing. Encouraged by this, investors have demonstrated committed enthusiasm to its growth and M&A landscape.

Emboldened by the sector’s overall strength and new opportunities, today’s Israeli visionaries are developing stronger convictions to build larger companies; many of them, already successful entrepreneurs, are making their own bets in the industry as serial entrepreneurs and angel investors.

The numbers also reveal how investors are increasingly concentrating their funds on larger seed rounds for serial entrepreneurs and the foremost industry trends. More than $2.75 billion was poured into the industry this year to back companies across all stages, a 97% increase from last year’s $1.39 billion. If its long-term slope is any indication, we can only expect it to continue to grow.

However, though they clearly indicate progress, the numbers still make the need for a demographic reset clear. Like the rest of the industry, Israel’s cybersecurity ecosystem must adapt to the pace of change set out by this year’s social movements, and the time has long passed for true diversity and gender representation in cybersecurity leadership.

Seed rounds reveal fascinating shifts

As the market’s biggest leaders garner experience and expertise, the bar for entry to Israel’s cybersecurity startup ecosystem has gradually risen over the years. However, this did not appear to impact this year’s entrepreneurial breakthroughs. 58% of Israel’s newly founded cybersecurity companies received seed rounds this year, totaling 64 seeded companies in 2020 compared with last year’s 61. The total number of newly founded companies increased by 5%, reversing last year’s downward trend.

The amount invested at seed hit an all-time high as average deal size in 2020 increased by 11%, amounting to an average of $5.2 million per deal. This continues an upward trend in average seed rounds, which have surged over the last four years due to sizable year-on-year increases. It also provides further support for a shift toward higher caliber seed rounds with a strategically focused and “all-in” approach. In other words, founders that meet the new bar for entry are raising bigger rounds for more ambitious visions.

YL ventures seed trends 2020

Image Credits: YL Ventures

Where is the money going?

2020 proved an exceptional year for application security and cloud security startups. Perhaps the runaway successes of Snyk and Checkmarx left strong impressions. This year saw an explosive 140% increase in application security company seed investments (such as Enso Security, build.security and CloudEssence), as well as a whopping 200% increase in cloud security seed investments (like Solvo and DoControl), from last year.

Related Articles

See the pitch deck that landed startup Lacework $525 million in the largest investment round for a cybersecurity company in the last year

Summary List PlacementHow do you convince investors to give a startup $525 million? 
“You have to have a lot of proof points,” Lacework CEO Dan Hubbard told Insider, after his Silicon Valley startup raked in a half-billion-dollar round after previously raising a total of $74.4 million. 
The six-year-old Silicon Valley company addresses the booming area of providing cybersecurity to companies growing and moving their operations to public cloud providers like Amazon Web Services or Microsoft Azure.
Perhaps the most important proof point is the total addressable market (TAM) that Lacework is tackling – a figure that gauges revenue opportunity – is climbing 20% year over year and reaching $13 billion in 2024. Analysts back that up.
Analyst Daniel Ives, managing director of equity research at Wall Street analyst firm Wedbush Securities, told Insider on Friday that “there’s $200 billion up for grabs in the next five years in cloud security.”
“We have the right product in the right market at the right time,” Hubbard told Insider last week. “The problem has come to us.” 
The company says it has seen revenue triple each of the past two years as more businesses build and run applications on the major cloud platforms. The company did not disclose revenue or specific valuation, but says the latter is above $1 billion. 
PitchBook shows the funding round was the largest in the cybersecurity industry for the past year, and the 22nd largest in all US industries over that span. 
It could have been even larger, Hubbard said. “There was an incredible amount of interest. There are going to be some people who feel left out.” 
Mike Speiser, managing director at Sutter Hill Ventures, compared the startup to his firm’s runaway success investment Snowflake, which has rocketed to a market cap of some $76 billion after its September IPO. 
Here’s the pitch deck Lacework used to land the mammoth funding round. Some slides with customer and competitive data have been removed by the company to protect proprietary information.

Responses

Your email address will not be published. Required fields are marked *

Receive the latest news

Subscribe To Our Weekly Newsletter

Get notified about chronicles from TreatMyBrand directly in your inbox