Microsoft and Qualcomm invest in Israeli cyber syndicate Team8

One of Israel’s leading names in cyber security picks up more global partners, including Citigroup

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Global corporates Microsoft and Qualcomm announced on Monday that they are joining Israeli hybrid fund and cyber startup lab Team8’s syndicate of associated entities, which already includes names like AT&T, Cisco, Nokia, Bessemer Venture Partners, Eric Schmidt’s Innovation Endeavors, and others.

Major banking player Citigroup, a long time connection of Team8’s, also joined as an official partner, but due to regulatory reasons that they say prevent them, did not take part in the investment.

To date, Team8 claims to have raised $92 million, including this current investment. Looking to the math and taking into account Claroty’s $32 million A+B round, illusive networks’ $5 million A round, and two other general rounds for $18 million and $23 million apiece, it appears as though this latest injection of cash from the new partners comes out to $14 million.

The announcement came with a sunny looking report of $22 million in sales for their first year of doing business, a number that they expect to rise with growing concerns after a tumultuous year of high profile hacks.

Team8’s Co-founder and CEO Nadav Zafrir spoke of the shift from 2015 when the big news in hacks was that of corporates like Target and Home Depot, to the much scarier cases of the attack in 2016 that shut down the electrical grid in Ukraine.

The move from more isolated and basic level attacks on individual companies has progressed to assaults that took on the SWIFT financial network, and the DynDNS DDOS attack over IoT networks that took down Twitter and other giants on the US East Coast. This is not to mention how hacking was used to influence the outcome of the US elections.

“What defines 2016 is that someone turned off the electricity,” says Zafrir, explaining the increased demand from the market for cyber solutions. While the shutting down of more trivial services like Twitter and Amazon for a few hours may not seem quite so significant, he makes the point that next time it could be autonomous cars or medical devices.

Hearing from the GM of Microsoft Israel’s R&D Yoram Yaacovi on the importance of working with influential actors in the cyber security space in Israel, he lays out bluntly that they simply have a strong interest in creating a safer environment. With over a billion devices facing over half a million unique threats a week according to Yaacovi, Microsoft has made a point of getting behind organizations that are making advancements in cyber. This includes the numerous cyber startups that go through the doors of their own accelerator in Herzliya.

Noting how new trends could have opened up new threat vectors, Yaacovi explains that, “Team8 is a company that is important for us to work with,” if they are going to make up for the lost ground caused by a lack of qualified security professionals.

It is their partnerships with big players that has helped the hybrid platform to develop so quickly. Having developed close ties with players like Citigroup from the get go has allowed the bank to come to the idea team at Team8 with their real-world problems, and then implement the early stage solutions into their own networks for testing. Having a global bank like Citi as your workshop for working out the kinks of a new product and running a successful POC has likely been an invaluable asset for the Team8 crew.
As the former head of the Israeli military’s signal intelligence and technology unit 8200, Zafrir is well aware of the density of the cyber market in Israel. In classical Spartan and startup style, he knows that not every company that starts their journey to greatness in this sector will succeed.

While he obviously hopes that it is his companies that reach the finish line, either making a large exit or IPO, Zafrir seems to have an eye on seeing the industry here grow as a whole. Due in part to the high level of Israel’s military tech units and academia, the country continues year after year to punch above its weight when it comes to churning out market-busting cyber talent and companies.

This well of talent continues to draw serious funding, with Israeli cyber companies seeing some $550 million in investments in 2016 alone. Interest in cyber companies is only likely to grow, with Markets&Markets forecasting that the cyber security market will reach a valuation of $202.36 billion by 2021. At last check, the market cap for cyber was gauged in 2015 at $75 billion, and is expected to rise at a rate of $20 billion a year for the foreseeable future.

Geektime Data Intelligence’s Beni Hakak points out that while certain areas like banking face significant requirements to implement certain cyber protections, most companies and government offices are yet to feel the impact of the pending regulation that is yet to come. Whether for e-commerce or even simple operations that hold any kind of sensitive data, Hakak says that like all organizations are required to work with an certiorari standards today, tomorrow they will need to be up to snuff with cyber security checks.

New regulations would mean a boon for cyber companies like fire code for smoke detectors: just a lot more profitable for the companies here.

This is not to mention the challenges that will come with IoT, autonomous cars, and connected medical devices.

All this should be good news for Zafrir and his team who find themselves in the very desirable position of solving enormous problems for very big customers. They say that they are looking to tackle deeper challenges, having taken on APTs and industrial security with their first two companies, and bring the fight to the attackers with innovative solutions.

“We need to work on things where we think we have an added value,” he says, leaving open the possibilities for their future rounds of companies. Part of making those companies come together is an aggressive hiring plan that looks to see Team8 hire another hundred employees over the coming year, working to build out not only their development staff but their sales and marketing teams for the US and UK.

Speaking to the press this morning, Zafrir is determined to be out in front of this competitive field while watching it grow. “We want to build sustainable and create a strong industry,” he says, adding that, “We want to build companies that lead their categories.”