On the morning of October 7, when Hamas invaded Israel, Merav Bahat was on a business trip on the East Coast, meeting with clients and investors. The co-founder and CEO of Israeli cybersecurity startup Dazz had been through her fair share of crises—after all, Bahat’s company helps customers assess vulnerabilities in their computer systems, and she was born and raised in a region known for geopolitical conflict. But this was different. As her phone started blowing up with texts, calls, and headlines from friends and family back home, the realization sank in.
“We’re in the most difficult time I’ve ever experienced in my life,” Bahat says during an interview which took place the week after the start of the war (more than three weeks later, the founder is still in New York).
The attack carried out by Hamas killed an estimated 1,400 Israelis, with 240 more taken hostage, according to Israeli officials. And the subsequent counter-attacks by the Israel Defense Forces, aimed at “destroying” Hamas, have killed a reported 8,000 Palestinians, according to the Hamas-controlled Ministry of Health in Gaza. A full-blown war has erupted, not just between Israel and the Gaza Strip in the South, but also in the form of escalating violence on Israel’s Northern border.
Bahat, like many other Israelis and Palestinians, has been personally impacted by the brutal conflict—one of her cousins is among the hostages Hamas captured and took into Gaza. (As of Oct. 31, there have been no updates about his condition or whereabouts.) But her company, Dazz, was also affected: To date, about 25% of Bahat’s staff in Israel has been drafted into the military as a result of the war. Many of Israel’s tech companies are in a similar predicament, with anywhere from 5% to a quarter of their employee base getting called into duty. But the country’s cluster of cybersecurity startups, which have long been leading innovators in the sector, are of particular importance. Why? Just as these companies are having to adapt to a shrinking workforce, cyberattacks targeting Israel are on the rise–an increase of 18% since the war broke out, according to analysis from Tel Aviv-based cybersecurity firm Check Point.
“The need for cybersecurity products has never been this high,” says Bahat, adding that she believes Israeli startups like hers can rise to the occasion, despite the fact that they are currently forced to operate with fewer employees.
A military-industrial cyber pipeline
Israel’s success in cybersecurity is tightly connected to its military prowess. Units like 8200, the well-known intelligence corps branch of the Israeli military, have spun out not just talent but ideas ripe for commercialization. As a result, the country’s cybersecurity sector attracts more venture capital dollars than any other region outside of the United States. According to data from Pitchbook, Israel-based cybersecurity firms raked in $1.8 billion in venture capital in the fourth quarter of 2021 alone, an all-time high for the region. But even well-capitalized companies like Dazz, which has raised a collective $60 million, have to be clear-eyed about the challenges ahead. A temporary loss of a quarter of the company’s staff in Israel, which translates to about a dozen people, is not insignificant for a startup. And if the current war turns into a protracted conflict, cybersecurity companies across Israel will need to come up with longer-term solutions to adjust and adapt.
“Right now it’s still too early to tell how we’ll reorganize and reassign tasks,” says Amitai Ratzon, the CEO of security validation software maker Pentera. “The worst I can see happening right now is that some new features would be unveiled three weeks after [their scheduled release date].”
To be sure, there are far less sanguine views of what the “worst” possible outcomes could be for the current war’s impact on the Israeli tech and cybersecurity industries, and the country’s economy at large. Already, JP Morgan Chase & Co has predicted that the local economy could shrink 11% this quarter on an annualized basis, and all signs point to no quick end to the conflict in sight. Israel’s defense minister, Yoav Gallant, has said that the war could last for months. And some are speculating that the military’s ground invasion into Gaza could lead to many more deaths, on both sides. So far, the majority of those who have been drafted from startups like Pentera or Dazz appear to be called in for cybersecurity roles in the military. But some are also being called in to enlist in combat units. In blunt terms: That means that in addition to the temporary absence of workers, there is also a certain level of longer-term risk to these companies’ pool of talent. And while the founders and investors interviewed for this article remain optimistic about their country’s ability to win the war and to recover, the very real toll that the conflict has already taken on everyone is evident to them.
At the moment, Pentera has about 350 employees total, with the biggest concentration (180 workers) in Israel. About 30 of those local employees have been called into duty, but Ratzon says that even those who did not have to enlist can be impacted. For example, some employees with kids have had their spouse called in to military duty, which means that they are now solely responsible for childcare. Then, of course, there’s the trauma. While Pentera did not lose any employees in the October 7 attack, most have been directly affected–Ratzon says one of his workers escaped from the now-infamous music festival in Southern Israel, where more than 260 young people were killed, and another colleague’s father is still unaccounted for, to name a couple of examples. As a result, startups like Pentera are having to figure out how to care for these employees and their families, offering access to therapy and other services, and communicating much more regularly with their workers as the war continues to unfold.
Colleagues are stepping up
There’s another challenge: With missiles still hitting Israel, and schools closing down in certain areas, many are currently working from home–again.
“Like everyone else, I woke up on Saturday [October 7] to a very different reality than what I expected,” says Gili Raanan, the founder of early stage cybersecurity investment firm Cyberstarts. “By Sunday [a workday in Israel], all of our companies switched to hybrid or work from home only mode.”
Raanan says that the pandemic prepared many Israeli tech companies to make the rapid switch to remote work. About 10-15% of his portfolio companies’ personnel have been called into the military. But those who are left are picking up the slack and able to continue working, says Raanan.
“There are people who are afraid to come to the office or are not focused enough, and that’s fine,” says Raanan, who attended the funeral of the brother of one of his founders, killed just outside of Gaza, a few days after the attack. “On the other hand I’m touched by the level of commitment and effort made by everyone who was not called for reserve duty—they are doing the job, covering for everyone else.”
It helps that many companies, including Dazz and Pentera, have large teams operating outside of Israel. And some argue that the sense of urgency inside the country can actually increase productivity, even as the local cybersecurity industry grapples with more limited resources on hand.
“I remember this from my days in the military,” says Nadav Zafrir, founding partner at Team8, an Israeli startup “studio” which incubates and invests in early stage cybersecurity companies. “All of a sudden the things that you thought take weeks and months take just days.”
Zafrir has an extensive background on both the military and private sector side. He was the commander of 8200, holding the rank of “Brigadier General” and serving a total 25 years in the Israel Defense Forces. And more recently, as an investor, he’s put money into and incubated more than 40 cybersecurity startups, all of which are based in Israel. Zafrir says he is confident that his portfolio companies have a deep enough bench of talent to thrive in the absence of even critical personnel, at least for the time being.
“This is a land where we’ve been innovating and punching above our weight for the last few decades,” says the commander-turned-investor. “Adversity and having to operate in the midst of conflict is not novel to us.”
Zafrir and the others interviewed for this article all say that their “business continuity” plans are solid, and that clients across the globe have not felt any difference in the customer service they are receiving since the war broke out on October 7.
But what happens next? For those inside the Israeli cybersecurity ecosystem, there is no option but to continue to innovate and deliver better and better tools to fight cyberattacks, even as the war escalates. It’s about meeting the needs of their customers, and showing the world that the Israeli tech sector and the country’s overall economy are still strong, say several founders and investors on the ground. But there’s another reason that they see no room for slowing down, even as they grapple with so much of their local talent getting called into duty. While the majority of the war’s coverage has focused on combat so far, their country’s future might also depend, at least partially, on its cybersecurity sector’s ability to defend it from cyberattacks as well. Says Bahat from Dazz: “I trust that Israeli cyber-technology will help us win this war.”
