Thanks to the growth in mobile and cloud computing, and the more porous borders it brings to the enterprise, the security industry is growing, and Israel's is no exception.
IBM's recent purchase of Israeli security company Trusteer is just one example of the new popularity of security in the startup nation. Earlier in August, GE announced it was investing in Israel's Thetaray, the company's first security investment here. And in May, Cisco CEO John Chambers announced that the company is starting its own incubator in Israel, specifically to help security startups come to market.
Elsewhere, digital vault Cyber-Ark announced this week that it was increasing its staff by 50 percent, due to a rise in new business (nearly half the companies on the Fortune 50 list are among Cyber-Ark's 1,400 or so clients, including 17 of the 20 largest banks worldwide). The company's sales, according to its Israeli centre manager Chen Bitan, have risen 40 percent annually year on year for the past several years, and today the company is the largest private IT security company in Israel.
But the road from security startup to acquisition or investment by an IBM or a GE is a long one.
Why would multinationals think to go shopping in Israel altogether? Because, said Gadi Tirosh, a general partner at VC firm Jerusalem Venture Partners (JVP), multinationals already know Israel and are comfortable here. Many of them already have R&D facilities in Israel, and in a sort of virtuous cycle, they meet entrepreneurs and innovators who work in or with startups.
Security to deal with the new class of security attacks — advanced persistent threats (APT) or highly-destructive zero day attacks is very much on the mind of enterprise and tech companies, Tirosh said, making security startups attractive targets. And very often, companies use their new acquisitions or investments to open up new R&D labs in Israel, dedicated to working on security.
"Once a company has a beachhead in Israel it is much easier for them to search among startups for the technologies they need," Tirosh said. One example of this trend was the 2011 acquisition of Israeli security firm Navajo Systems by Salesforce.com. Navajo's encryption platform for SaaS was just what Salesforce needed, and in order to continue to draw on Israeli security technology, Salesforce turned the Navajo offices into its first Israeli R&D center (Navajo, Cyber-Ark, and ThetaRay are or were part of JVP's portfolio).
And there's NDS, the largest security firm in Israel, acquired by Cisco. "Although most people don't think of it as such, NDS, which develops systems to ensure that cable and satellite TV premium broadcasts can only be viewed by paying customers, it is, operating at the junction of security and digital media," Tirosh said.
Acquiring NDS opened up a new vista for Cisco — laying the foundations for the decision to open an incubator specifically geared towards security. The field is so hot, in fact, that JVP itself is opening its own security incubator, Tirosh said.
IBM, too, is jumping on the bandwagon, and will use its recent acquisition of security firm Trusteer — for which IBM is rumoured to have paid in the neighbourhood of $1bn, possibly even besting the Waze-Google deal — to open up its own IT security R&D centre.
IBM already has numerous labs in Israel, and the new one will consist of, to begin with, more than 200 Trusteer and IBM researchers and developers to focus on mobile and application security, advanced threat, malware, counterfraud, and financial crimes. And there are dozens of potential Trusteers out there, ripe for exits. Expect more big deals in the Israeli security space, Tirosh said.