Cyber security will continue to dominate Israeli tech: Vertex Ventures

Photo credit: Blue Coat Photos .

The Israeli startup ecosystem raised a colossal US$3.6 billion last year, providing investors with a 50 percent return for each dollar invested. And there are no signs of slowing down – a report indicates overall funding figures for 2016 are well on track to smash last year’s tally.

“We’re very bullish on Israel,” affirms Yanai Oron, general partner at Vertex Ventures. “During the last two downturns we invested in three companies – Waze, CyberArk, and Solaredge, all of which had a US$1 billion exit.”

Vertex Ventures is an early stage investor with roots spread across Asia. It runs a US$150 million fund exclusively for Israel. Its portfolio consists of Argus, a cyber security company for the automotive space; E8 Storage, a company trying to improve flash-based storage; WireX, which is trying to simplify forensics; Webyclip, which looks at improving ecommerce landing pages; Innoviz, which is building 3D technologies for autonomous cars; and Indegy, a cyber security company for industrial infrastructure.

The major verticals of interest for Vertex are cyber security, storage, and enterprise software – areas where Israel has traditionally dominated. Another interesting area is autonomous vehicles, where a lot of innovation is happening. However, Yanai says the group is open for opportunities in any sector.

“We usually look for a very cohesive team that is both diverse in talent and have experience working together,” he explains.

Providing returns

Vertex has six general partners who scour for deals both through referrals as well as the strength of their network. Despite competition from both local and foreign VCs, Yanai says the investment climate is favorable and there’s plenty of opportunity for everyone..

Yanai Oron

“Cyber security is here to stay […] Storage has been a very successful sector and some of the world’s biggest storage companies have acquired their current solutions in Israel,” outlines Yanai. “I see this trend continuing.”

His analysis seems to be correct. Nine Israeli cyber security and storage companies raised funding in June, amidst a funding windfall of US$547 million in that month alone.

Israeli techie Hillel Fuld, founder of ZCast, says cyber security will continue to be the “bread and butter” of the ecosystem but adds that there’s also been a sizeable tilt towards big data and enterprise solutions.

“There’s a lot of capital coming into Israel from both the US and Asia,” he notes.

Flourishing networks

There’s more than just cash that Vertex brings to the table. It’s been an active investor in Asia for the past 20 years, with networks in Beijing, Shanghai, Singapore, India, and Silicon Valley. Yanai adds that one of their limited partners is a “Tier-1 automotive manufacturer,” which may explain the willingness to look at autonomous driving startups.