Cybersecurity unit drives Israeli Internet economy

Over the summer, in the middle of a two-month-long Israeli-Palestinian war, representatives of some of the biggest names in tech crammed into the stairwell of a Tel Aviv skyscraper to wait out Hamas rocket fire. Wearing Sequoia Capital name tags and TechCrunch T-shirts, they squeezed against one another, passing the time by talking about the Paris startup scene and the success rate of Iron Dome, Israel’s missile defense system.

They came to Tel Aviv for the demo day of a uniquely Israeli brand of startup incubator: one conducted by graduates of Israel Defense Forces Unit 8200 – the Israeli NSA. It was a fitting reminder of the close ties between Israel’s Silicon Wadi (the nickname for Israel’s startup ecosystem) and the country’s military establishment.

The 8200 is the largest unit in the Israeli army. It’s responsible for signals intelligence, eavesdropping and wiretapping, as well as advanced technical jobs and translating work. It is also widely acknowledged as producing a disproportionately high percentage of Israel's tech executives and startup founders, including the brains behind Check Point Software Technologies, NICE Systems, and Mirabilis (creator of the proto-instant messaging system ICQ) – three of the biggest Israeli tech companies.

In general, the military intelligence and technological units of the Israeli army (including 8200) provide the training ground for much of the country's tech successes. The founders of Waze, a popular GPS navigation app acquired by Google last year for more than a billion dollars , served in military intelligence. MobileSpaces, which was bought last month by the US firm Pulse Secure for $100 million, was founded by graduates of Unit 8200.

Adam Singolda spent seven years doing advanced encryption for the IDF before he founded Taboola in 2007, a recommendation engine that has an estimated value of $1.5 billion. Founders of the Web development platform Wix.com also served in 8200. That company went public last year in the biggest Wall Street debut ever for an Israeli company.

Because an intelligence background is not always publicly available information, it’s impossible to compile statistics, but experts agree the effect of the intelligence and technological units on the country’s hi-tech sector is massive.

It should be noted that it's not uncommon for former members of the intelligence community in other countries to found startups as well (ex-NSA employees have had a few successes recently) but the relationship between military intelligence and private industry is especially strong in the Jewish State, where the majority of the population is required to serve in the armed forces and there are more startups per capita than in any other country in the world.

As Dan Senor and Paul Singer noted in “Start-Up Nation,” their book on Israel’s hi-tech success story, “while it’s difficult to get into the top Israeli universities, the nation’s equivalent of Harvard, Princeton and Yale are the IDF’s elite units.”

Yinon Glasner, who has served for the last three years as the incubator’s program manager and is himself an 8200 alumnus, says that it’s a combination of responsibility at a young age and a creative, pressured environment that makes 8200 soldiers (and those from similar technology units in other branches of the military) such great startup founders.

“At the age of 19 or 20,” he says, “you are facing very complex challenges and you have to overcome them and find solutions. You have to think out of the box and be creative. And they’re technical solutions so basically you’re left with a start-up.”

Experience in 8200 can be a serious advantage when applying for jobs in the tech sector or acquiring investment for startups in Israel. Moshe Bercovich, who served in the unit and later founded the startup Photoccino, says that depending on what work you did in the unit it can be very useful later in life. “If you were pretty technical, did research and development, then it is very helpful – as this experience serves as a “quality stamp” for employers,” he says.

One group trying to capitalize on the link between military training and startup success is Jerusalem Venture Partners, an investment fund with close to $1 billion under management. The venture firm opened their new Cyber Labs in the southern city of Be’er Sheva this year. [Editor's note: The original version of this article misstated the amount of Jerusalem Venture Partners' fund. The firm has close to $1 billion under management.]

Cybersecurity is a booming industry for Israel. Israeli cybersecurity startups raised more than $140 million in funding in 2013, according to the Israel Venture Capital Research Center, and Israel represents 13 percent of global cybersecurity research and development spending.

Be’er Sheva is fast becoming the epicenter of the Israeli cybersecurity community and a big part of that is thanks to the military units nearby. About 30,000 soldiers from relevant units – 8200, computation, communication, cyber command – are located within close proximity to Be’er Sheva or in Be’er Sheva itself. The city also boasts Ben Gurion University, the first in Israel to offer cybersecurity grad studies and first in the country in the number of practical engineers it graduates.

And positioned right in between the army units and the university is a new industrial park home to Deutsche Telecom, IBM, and Lockheed Martin research centers.

The Israeli government's heavy investment in startup funding, and specifically in cyberdefense, plays it's part as well. Israel spends more on R&D relative to their size than any other country in the world.

Early this year, Prime Minister Benjamin Netanyahu opened Israel's first Cybertech Conference, which was attended by more than 450 global heads of industry and cybersecurity agencies, including 50 from the White House and the US Department of Homeland Security. In his speech, he stressed his government's focus on growing Israel's military-tech ecosystem.

"We’re putting our national cyber command smack in the University of Be'er Sheva. We have a railway line leading from Tel Aviv with a train station that literally you disembark on that point in the campus. So you have our security outfits, our university, and an industrial park all within walking distance of 100 yards," said Mr. Netanyahu."That’s called a cyber-hub," he said. "It’s a big thing.”