Shay Michel.

Israel must double down on cyber in time of crisis

“More than a cyber industry has emerged in Israel; a true tradition has emerged, which must be capitalized on,” writes Shay Michel, Managing Partner at Merlin Ventures

Israeli high-tech is facing one of the most challenging periods in its history. If this was open to discussion until the last few months, the war intervened and put an end to the debate. Wars, operations, and days of battle, of which we have seen quite a few in recent decades in Israel, make the continuity and development of the economy difficult in the short term. Assuming that the war will end or become a "combat routine" in the coming months, the State of Israel is already examining and thinking about how to generate budgetary sources for itself and inject funds into the country that will support the strengthening of the economy and continued healthy growth in the years to come.
An industry that has proven itself in recent years, even in the more challenging times such as this past year, is the cyber industry. This is one of Israel's most powerful and prosperous industries, employing tens of thousands of people, benefiting from investment and sales funds, and exporting billions of dollars. Israeli cyber companies provide advanced security solutions to governments, militaries, and businesses around the world.
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שי מישל – שותף מנהל בקרן ההשקעות – Merlin Ventures
שי מישל – שותף מנהל בקרן ההשקעות – Merlin Ventures
Shay Michel.
(Photo: Yonatan Michel)
The current war illustrates the importance of a strong cyber industry. Cyber attacks have become an integral part of modern warfare, posing a real threat to state security. Every day, and especially these days, Israel is under constant attacks that threaten to disable critical systems or organizations, steal sensitive information, and endanger citizens. Israeli cyber companies provide essential solutions for the protection of government computer systems, and they are an important component of Israel's security. This, in addition to the high-quality human capital that Israel possesses in the field which is widely discussed, contributes to the creation of an invisible but powerful layer of protection.
The significance of cyber extends beyond technology. More and more data that has recently been published in an attempt to shed light on the state of the industry and the status of Israeli high-tech in the world has revealed one recurring insight: cyber is an island of stability that protects Israeli high-tech and thus contributes significantly to the overall Israeli economy. We are used to hearing that "high-tech is the locomotive of the Israeli economy", but in my opinion it is also appropriate to add that cyber is the driver of the locomotive who leads the way.
It is sufficient to examine the exit research data released near the end of the previous year by the accounting and consulting firm PwC Israel. The authors of the report determined that 2023 was the most significant downturn since 2013. The number of transactions in the field fell to a decade low and the recorded financial volume was the lowest in the last five years. According to the data collected, the overall number of transactions decreased by 38% and the value of Israeli tech companies’ exits was $7.5 billion in 2023, representing a sharp 56% decrease from the previous year. All this while cyber exits accounted for 19 out of 45 transactions totaling $3.8 billion, accounting for 51% of the industry's total transaction value.
Even though cyber has gained popularity in Israel over the years, some people have a different perspective. In recent years there have been calls for entrepreneurs, the industry, and the government to take a different path. They claim that the Israeli cyber market has reached maturity and Israel must look for a different story for the industry, one that will lead and distinguish it in the world. They contend that the leading cyber companies have become international giants, making it difficult for young entrepreneurs to break through with small and young companies. Some have suggested directions in the field of food tech or technologies that serve renewable energies, following international discourse and the direction of favoring sustainability and the environment.
These claims may contain a grain of truth, but the right and necessary step for the State of Israel is different. More than a cyber industry has emerged in Israel; a true tradition has emerged, which must be capitalized on. It is more important than ever to the nation to encourage and strengthen the field. This can be accomplished through the injection of Innovation Authority funds, the encouragement of cyber incubators, the development of programs, mentoring, and the connection of companies to international markets. The new high-tech fields have a place, and it is appropriate to cultivate hungry entrepreneurs in them as well, but now that Israel is facing a critical economic period, it is worth investigating cyber as a factor that will propel the entire industry forward in the years ahead.
Shay Michel is a Managing Partner at Merlin Ventures