Huge reviews And the 2021 funding provided some optimism for the state of Israel’s cybersecurity industry in 2022, leading to a sense of security in Q1 of the new year. As other sectors rode the market tide throughout the year, capital continued to flow freely into cybersecurity, bolstering the belief that it is a technology that is resilient, impervious to market volatility, and impervious to panic. failure.
After closing the book on 2022 this week, it’s safe to say that optimism was somewhat misplaced. In hindsight, 2021 could be classified as an oddity that has sent the industry into a tailspin, with prices outpacing actual earnings and subsidies scaling at an unhealthy pace that many warn. The consequences of this cycle for Israel’s cybersecurity ecosystem are clear in the analysis of 2022 funding and M&A data.
Image Credits: YL Ventures (Opens in a new window)
In the year Total funding for Israeli cybersecurity startups in 2022 has dropped by a staggering 64%, from $8.84 billion in 2021 to $3.22 billion this year, and the number of funding rounds has dropped from 135 to 94 in 2021. billion from 109 funding rounds), 2021 appears to be a blip on the radar, and the industry is picking up where it left off in 2020.
Much of the capital that has flowed into Israel’s cybersecurity industry has gone directly into early-stage startup seed.
The first step is to get the money
Our data indicates that most of it is capital. He did This year, the cybersecurity stream flowed directly into a very special place: the seed round of an early-stage cybersecurity startup. The average 2022 seed round actually broke the 2021 record ($7 million), reaching a whopping $9 million. Overall, seed funding grew 65 percent this year, from $233 million in 2021 to $384 million in 2022.
This impressive amount of capital committed to the early stages of the company’s construction demonstrates investors’ confidence in the cybersecurity industry’s ability to create and build solutions to the ever-increasing threats.
Image Credits: YL Ventures (Opens in a new window)
Additionally, it indicates that it will be difficult to raise Series A rounds this year, as investor round times are growing in light of the economic crisis. While Series A rounds have remained almost unchanged since 2021 (30 rounds last year and 24 rounds in 2022), investors have chosen to support startup rounds that have grown sustainably and cautiously since the introduction.
Image Credits: YL Ventures (Opens in a new window)
“Since the cost of building a company has not gone down, investors see seed financing as a clear starting point. They know that building a company from the ground up and making sure it gets to the Series A round at a high maturity will cost money,” said Iron Reznikov, Director of Corporate Development and Ventures at Sentinel One. At the same time, investors expect their founding teams to set clear goals for getting to Series A and to engage with customers quickly and strive to get the product to market at an early stage.
This confidence is shared by cybersecurity founders, who believe that despite this year’s market volatility, they still have the potential to build something meaningful for enterprise protection and business continuity. “Early-stage startups are very ready to respond to market demand with limited budgets,” says Slavik Markovic, co-founder and CEO of Deskop, a stealth startup that builds services for app developers in the authentication space.
“A tight economy is often accompanied by fraud and cyber attacks. User adoption and conversion have become more critical in this market, with businesses looking for solutions that reduce friction for their end customers to prevent any source of problems. The founding teams of early-stage companies focused on solving these problems will continue to attract investor interest.
