Investing in Israeli Cybersecurity Companies
Aaron Applbaum segments the cybersecurity industry and discusses the moats surrounding cybersecurity companies. He provides insight into the importance of marketing and developing common platform technologies in the cybersecurity space.
Aaron introduces us to three fascinating portfolio companies—Autofleet, Orca and Hexight.
Aaron Applbaum, Partner, MizMaa Ventures
Aaron Applbaum is a Partner at MizMaa Ventures, which invests in early-stage companies. Previously, Aaron was the Director of Investments at Strategic Cyber Ventures and worked on the Direct Investments desk At Hudson Bay Capital Management.
MizMaa Ventures assists its Israeli portfolio companies commercialized in the East and West. In fact, MizMaa is the portmanteau for the Hebrew words for East and West. MizMaa is also shepherding its companies to the Gulf and it has received investment from at least one Gulf sovereign wealth fund.
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00:00:59 – A lot of our relationships are at the customer level.
I’ll break it into two parts, the first of which is a lot of our relationships, especially the strategic ones, wind up being not investors so much in Misma, but customers of our portfolio companies.
So we’ve created relationships between our fleet optimization company here in Tel Aviv to large fleets in Singapore, or we have a company in ad fraud, sort of cyber for customer acquisition that has a huge footprint in Japan. So a lot of our relationships are at the customer level. Some of our relationships turn into direct investing into our portfolio companies.
And then there are a few who have decided also to invest in Misma. The ones that invest in Misma, it’s purely for financial returns. The ones that invest in the companies, it’s for some combination of financial returns and strategic value. And then the partnerships are obviously just for commercial reasons.
00:09:48 – What’s really neat about mobile apps is they are a sovereign wealth fund.
Actually, we’ve recently picked up our activity in the Gulf. So Mubadala, the Sovereign Wealth Fund of Abu Dhabi, is actually a limited partner of ours, an investor in our second fund. And they’re wonderful to work with. And what’s really neat about mobile apps is they are a sovereign wealth fund.
Their primary goal is to increase the purse of the country and make sure that its inhabitants are cared for. And as part of that, they’re also interested in job creation, local job creation, and JVs, and bringing Israeli tech to better the ecosystem within the UAE, within Abu Dhabi.
And so that has led to early we’re still figuring out exactly how to take the most advantage of it and really be true partners to them. But we are, in some discussions about how to commercialize our technology in the broader Middle East.
00:28:23 – Cars that are now running millions of lines of code, and our computers screening down highways at hundreds of kilometers an hour, and they need software updates.
We’re about to invest in an open source cyber company. We’ve invested in anti ad fraud, in cloud security, in dev tools, security for developers. We’ve invested successfully in automotive.
So some of our best-performing companies, there is one intelligent operations. So the ability to remotely take over a car. We’ve invested in over the air updates. So a company that allows you to just like your iPhone updates with the newest security and the newest features and the newest user interface, and cars that are now running millions of lines of code, and our computers screening down highways at hundreds of kilometers an hour, and they need software updates.
We’ve invested in a company that does that one in fleet management, as I’ve mentioned, I’d say those cyber and mobility are probably our deepest investment fields. But we’ve also succeeded in Photonics, so in hardware and in the data stack. Actually, we today announced an acquisition. One of our companies in data analytics was acquired by a big company. I think it hit the papers today. All heavy engineering problems out of this role are fairly so it seems like.
00:34:47 – It’s one of the reasons that cyber in particular is not something you can just throw an infinite amount of money at.
It’s all about leverage. It’s about data collection, intelligence gathering, building a lot with a little being lean.
And what’s brilliant about the cyber ecosystem is that there are tens of thousands of young professionals in the military who are actively hacking networks, defending networks, defending critical infrastructure, defending the cloud, and all of these real world missions, life and death missions that they go on, give them a training that can’t just be acquired, that can’t just be learned in a university.
And so it’s one of the reasons that cyber in particular is not something you can just throw an infinite amount of money at.
Money helps, but the know how is so specialized, and the Israelis have it in such volumes that it makes it a very unique and very special place to invest okay.
00:40:16 – Obviously we look for companies at our stage that have strong product retention.
Look what NSO could do in offensive hacking. And that’s Sentinel One is an example of an Israeli company that made a great name for itself, protecting the endpoint. You’ve got application security. So not the device itself, but the software running on the device. Whether that’s APIs, right? APIs can be hacked. Those are protocols that are written to call information from somewhere else and elicit a response. So you’ve got API security within the application. You’ve got open source security within application security. You’ve got supply chain security, right? So someone builds a component, and you take that component, you build on top of it. You build on top of it. And by the time you’ve got a fully formed piece of software, it may have 100 different fingerprints from a dozen different organizations.
00:48:46 – We have like not an Israel company, but in the test automation space they do offer free trials, and test triggers, you can test the software before you actually commit and buy it.
I think the challenge with the premium model is you really need to have strong believers in product-like growth and obviously that’s something that has been in the market and adopted quite significantly from many companies.
It’s a good model when your end customer usually doesn’t require sales to be involved in terms of the process. If you’re serving for example, SMBs or like lower mid-market companies, freemium model is a great one to differentiate yourself if other companies are not offering that. And so for example, we have like not an Israel company, but in the test automation space they do offer free trials, test trigger, you can test the software before you actually commit and buy it.
It’s a great marketing tool because developers love to test the products and they don’t like talking to the salespeople. So for developers niche it’s a very interesting one to offer specifically for them, for instance. But if you are serving like mid-market companies and enterprise customers, everybody is concerned with data and everybody is concerned with security. So it’s very hard for the mid-market and enterprise customers to lure them in with a freemium model.
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