It’s no secret that Israel is second only to the U.S. for its leading cybersecurity acumen, talent, startups and successful exits.
Israel is a powerhouse in both offensive and defensive cyber operations, with cybersecurity giants CyberArk, Check Point, and Illusive Networks all founded in the country in recent years. For more than two decades behind the scenes and powering some of the country’s largest cybersecurity startups was Jerusalem Venture Partners (JVP), a major venture capital firm in the region with more than $1.4 billion raised to date.
Now, the firm is pushing further into the early stage cybersecurity space. With a $220 million fund dedicated to early stage and pre-seed companies, the venture capital firm has expanded to New York.
Erel Margalit, JVP’s founder and executive chairman, spoke to Extra Crunch about why New York is a prime location for early-stage cybersecurity startups and how Israel became an incubator for some of the world’s biggest cybersecurity companies.
We also discussed why diversity is critical to his firm, how he separates fact from fiction in the security world, ethical investing, and which kinds of companies he would never invest in.
This interview has been edited for clarity and length.
TechCrunch: Tell me a little about your firm and your current work on early-stage investments.
Erel Margalit: I established JVP 25 years ago. A lot of what we were doing in the beginning was taking defense-related technologies, like wireless and fiber optics and large data systems, and transforming them through the communications world into the commercial world. Now we have 14 companies — some of which have been very successful. We’re now at a different stage where we’ve partnered with New York City to create the biggest hub in the city for the next generation of companies — the sorts that are scaling up with solutions that are not necessarily the big solution today,
Israel as a cybersecurity powerhouse
You’ve seen three or four really successful exits in the last few years from former startups you’ve helped to build out. What does the formula look like that results in these successful exits?
One of the things that we’re trying to do with second-generation entrepreneurs is we’re saying, instead of building a company to be sold for $250 million, why don’t we build a sales organization that would reach $250 million in a few years and instead build a very significant robust sales and marketing organization?
Israel has big ideas, but we’re small country. That’s why North America — especially the U.S. — is a key first go-to market. But it’s not always easy to get it right when you’re trying to get into the U.S. and scale in a big way. However, if you are successful, a lot of Israeli companies are also able to sell into European countries and Asian countries. And so what you get is what I call a “mini-multinational,” which is a small organization that’s able to get its first customers in a bunch of places around the world. So — go forward, and then build a sales and marketing organization that is just as strong as your research and your development organization.
Israel has a conscripted military — one that invests heavily in both cybersecurity and offensive cyber capabilities. That’s one way Israel got a considerable amount of cyber talent in one place. But what else contributes to Israel’s ability to create so many strong cybersecurity startups?
Israel needs to be as strong as the seven countries around it. And the only way to do it was through technology. Cybersecurity today is one of the main means of technologically understanding what’s going on. There are state-backed cyberattacks happening all the time — they’re attacking utilities, they’re attacking the banks, but what’s going on now is they’re also attacking democracy and the individual’s rights for something that’s becoming a national issue. The British didn’t have a fair election on Brexit. The same thing happened in the United States.
I think that a lot of us understand that from just protecting large organizations and countries. Now we’re moving to protecting individual democracies and our free way of living. Everything is online. Everything now is penetrable. And if you don’t have the next-generation of strategies, you’re not going to not going to be able to continue to operate.
On the New York hub
The cybersecurity hub in New York clearly means a lot to you. Why did you choose to build a hub in New York and not somewhere else in North America?