The impending deal to acquire the Israeli cybersecurity company Wiz illustrates the importance of the cybersecurity sector in Israeli high-tech. In a report published by Startup Nation Central, the first half of 2024 showed that over half of the investments during this period were in cybersecurity companies.
According to the report, deals, mergers and acquisitions in the cybersecurity field in Israel amounted to $1.5 billion across nine transactions, which constituted 35% of the exits in the first half of 2024. The sector's significance is particularly evident in comparison to the U.S. While in 2018 it represented 20% of investments in both countries, over the years, the rate in the U.S. dropped to about 13%, while in Israel it grew to 25%. However, Startup Nation Central cautions that Israel's dependency on cybersecurity could, in the long term, come at the expense of other sectors.
According to Avi Hasson, CEO of Startup Nation Central, Israeli cybersecurity has managed to overcome war-related investor hesitation. "Fundraisings and cybersecurity activities have successfully overshadowed regional risks. We expected the war to have a stronger impact on Israeli high-tech, but the data shows otherwise. While some investors hesitate, others are increasing their investments. Leading startups continue to secure funding."
The report paints a positive picture of Israeli high-tech while the country is in its ninth month of war. Israeli investments are booming with an increase of 31% compared to the second half of 2023 with an overall investment of $5.1 billion. For comparison, the U.S. experienced an increase of 28% while Europe and Asia went through a 6% and 18% decline respectively.
Another positive trend is the increase of non-Israeli investors in Israeli hi-tech. About 46% of the 217 investors in Israeli high-tech are non-Israeli global investors who have returned to Israel. Firms such as Sequoia Capital and Greylock Partners have returned to Israel with offices in Herzliya.
Most leading companies have headquarters abroad
An analysis by the RISE Israel think tank curbs our enthusiasm. The research institute found that 75% of Israeli companies that raised over $25 million in the first half of 2024 have headquarters outside Israel, and about 65% of CEOs are based abroad (about 60% in the U.S.). Around 85% of companies that successfully raised $100 million or more have headquarters located abroad, and 77% of their CEOs are based abroad. RISE found a clear connection between an Israeli company's ability to fundraise significant amounts and locating their headquarters abroad, primarily in the U.S.
RISE raises the question what makes a high-tech company Israeli. According to the popular belief in Israel, even if a high-tech company is based abroad with its CEO, it can still count as an Israeli company if the CEO is from Israel. As a result, in many cases, an "Israeli" company raised funds, but the investors' belive they invested in a multinational company with activity in Israel.