The FISMA Focus IPD

Smart investors seem to have fallen in love with cyber security lately.

Just a few years ago, most investors believed that the cyber-sector did not justify significant venture capital attention or investments. There were several reasons for this:

• Headline-grabbing, landmark cyber-attacks only started to receive attention some two to three years ago.
• The IT and OT (operations technology) environments had yet to undergo fundamental transformations in fields such as cloud, industrial Internet, and mobile computing. As such, cyber security was believed to be safe in the hands of predominately legacy solutions such as firewalls and anti-virus software. For over a decade, many considered cyber security a space requiring a relatively low level of innovation.
• Cyber security startups suffered from a glass ceiling in terms of valuations, with many stuck at the $50 million level, limiting the upside potential.
• Regulation has lagged behind threat-levels, allowing executives to shirk responsibility and companies to defer needed security measures and related spending.

But all that has changed. The increasing ferocity and scope of cyber-attacks worldwide, growing awareness of the problem, and the steady blurring of the lines between cyber security and our personal, financial, and national security has led to a significant global upswing in investment over the past two years. This is particularly true in my country, Israel, a “Startup Nation” renowned for its cyber-prowess.

As a partner at Jerusalem Venture Partners (JVP), which operates JVP Cyber Labs — an early stage investment vehicle dedicated to cyber security startups — I have witnessed this trend up close and personal.

In 2012 alone, over 200 cyber security startups worldwide attracted more than $1.4 billion, up from approximately $1 billion in 2011 and some $500 million in 2010. Last year, 2013, seems to have generated even higher figures.

Interestingly, seed stage cyber companies, considered the riskiest, enjoyed more than 30 percent of these investments.

In Israel, we’ve seen the number of new cyber security startups rise from around 30 new companies a year to more than 100.

There are good reasons for this blossoming love affair. Cyberspace is becoming dramatically more dangerous as trends in information and operational technology continue to develop at a dizzying clip. Technology such as cloud, mobile, the Internet of things, M2M, the big data explosion, and the industrial Internet are changing the connected world as we know it and bringing with them new, previously unimagined threats.

And the more connected we grow, the more vulnerable our “house of cards” becomes. Combine this with the growing sophistication, effort levels, and budgets of cyber-criminals, cyber-terrorists and rogue states, and the need for disruptive security technology is unmistakably urgent.

Regulation and compliance in the cyber security realm are also progressing at a much swifter pace in line with burgeoning threats and have driven increased spending. It’s estimated to be more than $60 billion annually. The U.S. government alone spends more than $12 billion on cyber security per year.