Class of 2020 | cohenjas@wharton.upenn.edu
Cybersecurity is evolving at a pace not seen in virtually any other sector of the economy. Every year, the landscape changes completely as cybersecurity firms try to keep up with malicious hackers. In the last year, we saw an unprecedented number of large-scale hacks that has brought cybersecurity into the mainstream. 167 million users had their LinkedIn information compromised in May. The DNC was attacked, which resulted in the exposure of thousands of emails and other personal information. In August, Dropbox had millions of account credentials exposed. 500 million Yahoo accounts were compromised, and more than half those users’ information is being sold on the dark web.
Yet, as cybersecurity gets more complex, it also becomes more important. A few years ago, there were 20,000 attempted cyber-attacks a week. Now, that number is nearing 700,000. While investments in cybersecurity have slowed over the past year, going from $3.8 billion of funding to just $3.1 billion, B2B SaaS companies selling directly to banks and corporations who are willing to pay for increased security have thrived because of the importance placed on keeping information private and secure.
This is where Secret Double Octopus comes in. The Israel-based company, founded in 2015, uses a multi-layer approach to authentication. Their model gets rid of encryption keys and instead randomizes information as it goes to its destination. By removing the weak-point of the encryption key, Secret Double Octopus’ approach is unbreakable, even with unlimited computing power, due to the fact that not enough information is released in the first place to break it. The technology also removes the need for SMS and code-generating fobs by using a combination of biometrics and fingerprints integrated into a handset. This innovative method was enough to net them $6 million in Series A funding from backers such as Jerusalem Venture Partners, Liberty Media’s Israel Venture Fund, and others.
While Secret Double Octopus is a fascinating look into what the future of secure authentication may look like, it is just one example of the incredible cybersecurity innovation coming out of Israel. On the same day that Secret Double Octopus was funded, Illusive Networks, and Israeli startup that builds “deception” frameworks to identify and trap malicious hackers, was backed by Microsoft Ventures. Illusive has already raised $30 million from funds such as Bessemer Venture Partners and Citi Ventures, and their technology is being used at numerous large corporations. These Israeli success stories are hardly rare: Israel is home to over 450 active cybersecurity startups, and that number is only going up.
In fact, cybersecurity funding in Israel has increased over the past year, which comes in stark contrast to the decrease in overall funding. Why is this the case? Perhaps we should assume as little as possible—it could be that Israeli tech is just better. Israel has certainly been leading the way for the past several decades purely out of necessity. The target of attacks from many of its neighbors, Israel has put an intense focus on technological development, funding cybersecurity research before it was even a field. Additionally, compulsory military service breeds talented individuals with a drive and will to succeed, as well as a vast array of high-level experience, that does not exist anywhere else in the world. Graduates of the IDF’s elite technological units, such as Unit 8200, have gone on to develop countless groundbreaking technologies, and the results show. According to Israel’s own National Cyber Bureau, Israel accounts for 10% of global security technology today. The world has recognized Israel’s adeptness when it comes to this technology, and numerous corporations have headquartered their centers of technology and innovation in Israel’s “Silicon Wadi.” For example, Intel has been in Israel for decades, and Microsoft is moving their security business to Israel while also acquiring numerous major Israeli cybersecurity firms every year.
Looking ahead, it will be interesting to see where cybersecurity takes us and how markets react. Investors are increasingly seeing how lucrative cybersecurity can be and how educating themselves on cybersecurity trends may be worth it in the long run. Israel is the center of innovation in the field, and as artificial intelligence, the internet of things, and other fields within tech grow, cybersecurity will go in directions that cannot even be imagined now. It is a given that cybersecurity’s relevance will only increase, and funding will continue to pour in, especially given the current worldwide political tension and thus plethora of cyber-attacks by state actors. The only question is who will profit from it.
Figure 3: Cybersecurity Global Yearly Financing History: 2012-2016 YTD (7/12/2016)