The path of the Cybersecurity start-up has historically ended with either an exit or a fade-out. Until recently, while not unheard of, it’s rare that start-ups mature and scale up to significant revenues.
However, the climate seems to be changing. The expected figure for companies scaling up is significantly higher than in previous years. While in 2017, a mere 35 Cybersecurity start-ups reached an annual revenue exceeding $10M, the Start-Up Nation Central 2019 Cybersecurity Report states that 2018 saw a trend of maturation among more and more Cybersecurity companies.
The Trend is Shifting from Early Stage to Late
Early stage start-ups have always been a known draw for investors, with companies offering cutting-edge solutions to existing problems, proving irresistible time and again. Furthermore, there is an industry-wide global understanding that Israel’s competitive advantage lies in its tendency towards breakthrough solutions and cutting-edge innovation, which are heavily concentrated in the early stages of a company’s lifecycle. For this reason, we have seen fewer start-ups scale up and mature, due to the assumption that Israeli start-ups faced challenges in creating vast sales and marketing operations, as well as in penetrating new markets. Nowadays, with more accessibility to capital than ever before, Israeli start-ups will arguably be able to overcome these challenges and excel in this vibrant market. This also seems to be why investors from across the globe were largely attracted to investing in early stage start-ups, and there was less of an incentive to get on-board with the later stage start-ups prior to 2018.
Scaling up and expanding was thought of for years as an atypical progression for Israeli start-up companies; it was presumed to be too difficult for start-ups to get to that stage, or to be able to raise that level of funding. However, it now seems to be a very different situation. There is a huge amount of capital being invested in late stage companies – in a way that is almost analogous to fertilizer. The more that is spread out across the sector, the more fruitfully does the sector flourish, and the start-ups thrive. The number of Cybersecurity companies that had larger funding rounds – where larger means greater than $30M – almost doubled in the period between 2017-2018.
More Money, More Non-Israeli Investors
There is now a definite shift in trends – particularly since additional investors are showing definite interest in putting their money into later-stage companies. Over the past few years, more capital seems to be floating around than ever before. Interest in the more mature and established company and product is generating serious buzz among investors. However, it isn’t just Israeli investors who are expressing this interest. More non-Israeli investors than ever are looking at Israel as a likely, even desirable, place in which to put their capital – including corporate VCs.
Leaders in the Field, More Than Ever Before
This growth of cash gives rise to a new-old phenomenon. As a result of the potential collective maturation of the sector, we predict that over the next few years we are likely to see more and more Israeli Cybersecurity companies positioning themselves as leaders in their own fields of expertise within Cybersecurity.
A Different Model for Success
There is a further manifestation of this abundance of investment in late-stage Cybersecurity companies in Israel. It appears that it’s becoming more lucrative to grow a company to maturation, and scale up and expand its business, rather than to hope for a big buy-out, or that multi-million-dollar exit – heralding a new era in the age of innovation and high-tech.
To read more about this and other insights into the Israeli Cybersecurity sector, download the Start-Up Nation Central 2019 Cybersecurity Report .