Monday, February 03, 2014

(BN) Israel Emerging as Cybersecurity Powerhouse With Investor Kramer

(Bloomberg ) Israel's campaign to become a cybersecurity powerhouse, an effort trumpeted by Prime Minister Benjamin Netanyahu, owes a debt to entrepreneur and investor Shlomo Kramer.

Over more than two decades, Kramer has founded or backed six Israeli online-security companies, amassing a personal fortune of about $800 million, according to data compiled by Bloomberg. The 47-year-old has taken the money earned from deals and initial public offerings and plowed it back into new startups and technologies, developing fresh ways to fend off virtual enemies.

"He is my first call in terms of bouncing ideas and brainstorming in terms of security," said Asheem Chandna, a partner at Menlo Park, California-based Greylock Partners who has backed Kramer's companies and serves on the board of one of them. "He's able to map how these markets are headed. His crystal ball is as strong or as clear as anybody's out there."

A co-founder of Check Point Software Technologies Ltd., the second-largest listed Israeli company, Kramer represents a breed of innovators that the country is seeking to harness in a bid to boost technology exports. Online attacks against Web hosting servers and data centers are a growing threat, spurring demand for more advanced defenses. U.S.-based Neiman Marcus Group and Target Corp. were both recently compromised by hackers, who stole credit card information. Snapchat Inc., a popular photo-sharing site, also suffered a breach.

'Geeky' Upbringing

Like the hackers he pursues, Kramer has spent his life fiddling with technology. As a youth, he worked on mainframes and sold video games.

"I grew up very geeky," Kramer said in an interview from the offices of Imperva Inc., a maker of security software for business applications where he serves as chairman and chief executive officer. "I'm also a very competitive person, whether it's on the basketball court or managing a business."

Kramer's tech savvy and competitive streak helped land him in one of Israel's elite military-intelligence departments: the 8200 intelligence unit, a group tasked with decrypting online information and gathering data.

"You have certain units like 8200 which help produce people like Kramer because they're exposed to cutting-edge technology," said Saul Singer, co-author of the book "Start-up Nation," which tells the story of how Israel became a hotbed for tech companies. "The army is a natural breeding ground."

Hacker Wars

Eighteen-year-olds serving in the 8200 unit confront the world's hackers, just like veteran staffers at global intelligence agencies such as the U.S. National Security Agency. That environment instilled the confidence needed to solve complex problems, Kramer said.

"The army gave me tools to believe I can do quite a lot of things," he said. "It made us take for granted things like starting a security company."

After his early success with Check Point, Kramer kept building and financing companies that also went public. Imperva raised $90 million in its IPO in 2011. Another Kramer-backed startup, Palo Alto Networks Inc., raised more than $260 million in its stock offering the following year. In 2013, International Business Machines Corp. bought Trusteer Inc., a security-software maker where Kramer was an investor and director, for more than $800 million.

At the same time, Kramer has missed some opportunities. After the dot-com bust in the early 2000s, he sold most of his stake in Check Point, missing a rebound in the shares over the next decade. He also regrets not investing in FireEye Inc., a security company whose stock has more than tripled in the past 12 months.

Seeking Profits

His current crop of companies aren't yet profitable. Imperva lost an estimated $14.4 million last year, according to analyst estimates compiled by Bloomberg. Palo Alto Networks, meanwhile, has lost money for five of the last six years.

"These are companies in the process of investing in sales, marketing, and research and development," said David Kaplan, a Tel Aviv-based analyst at Barclays Plc. "It's not atypical for growing companies to struggle with growth in the beginning. Other companies in this space, such as Check Point, are now making lots of money."

Netanyahu, seeking to foster Israel's technology industry, formed the National Cyber Bureau in 2012 to help the military, universities and businesses collaborate. Startups with Israeli roots often set up headquarters in California's Silicon Valley: Imperva is based in Redwood City, while Palo Alto Networks is located in Santa Clara. Still, Israeli engineers typically remain integral to research and development.

Defense Contractors

Israel's military contractors -- including Elbit Systems Ltd., Rafael Advanced Defense Systems, Israel Aircraft Industries International Inc. and Israel Military Industries Ltd. -- also have created cybersecurity departments over the past year, according to a report from TheMarker.

At a conference last month for global technology leaders in Davos, Switzerland, Netanyahu said Israel "is interested in sharing with the world the considerable know-how that we have accumulated in protecting industries from technology-based attacks."

In the past three years, Israel's cybersecurity field has grown from a few dozen companies to more than 220 and raised more than $400 million, according to the Tel Aviv-based IVC Research Center. Twenty multinational companies now operate online-security development centers in Israel, half of which were established since 2011.

'Bad Guys'

"There's higher need for innovation in security than there is in enterprise software or networking," Kramer said. "The bad guys continue to innovate, so there's need for constant innovation on the vendor side."

A weightlifting champion in his youth, Kramer typically comes to work in jeans, sneakers and a polo shirt. His Tel Aviv office is still sparsely furnished after a recent decision to move back to Israel from California with his family.

His latest investments include Lacoon Mobile Security, which protects mobile phones from cyber-espionage, and WatchDox, a maker of software for securing documents on mobile devices and the cloud.

"He's got a very strong personality and can identify a diamond in the rough," said Steve Krausz, a general partner at Menlo Park-based U.S. Venture Partners, which invested in Trusteer. "There is a uniqueness about Israeli entrepreneurs in terms of their toughness and their ability to go very far on very little money."

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