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Leading VC JVP On Cutting Edge of Investing in Cybersecurity Startups

While the majority of the world’s largest and most well known VCs are in Silicon Valley, that does not mean that all of the best performing VCs are in Silicon Valley or even the US. One of the world’s top VCs by performance – which many casual tech aficionados in the US may not be familiar with – is Israeli VC Jerusalem Venture Partners (JVP).

While the majority of the world’s largest and most well known VCs are in Silicon Valley, that does not mean that all of the best performing VCs are in Silicon Valley or even the US. One of the world’s top VCs by performance – which many casual tech aficionados in the US may not be familiar with – is Israeli VC Jerusalem Venture Partners (JVP). JVP has been ranked one of the top ten performing VCs in the world, and they have helped birth a wide number if innovative Israeli startups, many of which have been acquired or gone on to an IPO.

I am pleased to be joined today by Yoav Tzruya, a Partner at JVP.

IT Specialist: Thank you for joining us today Yoav. To start with, could you provide some brief background on Jerusalem Venture Partners, such as how you got started and what is your role within JVP?

Yoav: Jerusalem Venture Partners ("JVP") is a leading Israeli venture capital firm. Established in 1993, JVP now has over $900 million under management. With its nineteen year track record in Israeli and international markets, JVP is well positioned to source Israel’s best early-stage technology deals. Over the years, we have invested in close to 100 companies, and have been able to generate 11 IPOs - all of them on NASDAQ, the most of recent of which is QlikTech (NASDAQ:QLIK) - and 15 M&A’s–the most recent of which include CyOptics (acquired by Avago), and XtremeIO (acquired by EMC).

We invest in all stages – starting from seed, all the way to late stage investments. Our focus areas are digital media, cyber-security, enterprise software and storage. The majority of the Fund's activities are led out of its International Media Quarter in Jerusalem with industry advisors in New York and Paris as well as an international network of strategic partners. 

In 2013, JVP established its Cyber Incubator, “JVP Cyber Labs”, in BeerSheva. The incubator specializes in cyber-security and enterprise software startups. Our incubator is the first Israeli early stage incubator focusing on cyber-warfare, enterprise-security and data protection. The incubator will be in close proximity to the new communications and intelligence corps of Israel's military. We work very closely with a network of key multinational corporations some of which have established R&D centers in close proximity to the JVP Cyber Labs, in the fields of telecom, IT, finance, energy and security. JVP's Cyber Labs aims to be the focal point for the next generation of leading technologies in cyber-security.

IT Specialist: Is there any particular sector that you focus on - I know cybersecurity has always been one of your prime areas?

Yoav: Yes, our focus areas are digital media, cyber-security, enterprise software and storage. Specifically, we’ve been investing in cyber-security since 2001. To name a few - we’ve led the investments in MagniFire (acquired by F5), that paved the  way for WAF, Navajo (acquired by SalesForce), a leading cloud security and compliance company, and CyberArk – which is the global leader in privileged identity and session management. We recently invested in two other companies out of our early stage JVP Cyber Labs investment arm. One, in which we teamed up with GE (General Electric), called ThetaRay, which specializes in APT detection based on big-data algorithms,and the other, a startup with innovative, predictive end-point security technology. 

IT Specialist: Can you tell us a bit more about the background of JVP CyberLabs and what was the genesis for its formation? Is it somewhat like an accelerator or incubator, where you nurture a group of companies in exchange for equity? If yes, what are your criteria for selecting your participants - are you looking for a certain amount of revenue or proven traction in the market, or are you focusing more on the quality of the technology and the background of the founders?

Yoav: JVP Cyber Labs is our early stage investment arm, focusing on seed and A-rounds for the cyber-security sector. We see hundreds of relevant companies each year, and invest in less than 1%, with an average of three new companies a year. Our initial investment is in the range of $1M-$1.5M. This is leveraged by a risk-free loan from the Israeli government that our startups are entitled to, of around$600K. Since we are looking for very early stage companies, most do not enjoy revenues currently. Our criteria revolves around the market they focus on, their understanding of the market, how critical is the problem they are solving, the uniqueness of their solution, their sustainable competitive advantage, etc. But most of all, it’s about the team, their ability to work together, their flexibility, experience and so on.

We are very much a hands-on investor and we are involved with these early stage companies in every aspect of the company’s growth process – tech, product, marketing, business development, sales, fund-raising, etc. We also provide them with G&A services such as legal, finance, HR, purchasing, administration and more, allowing them to focus on their core activities. Since JVP Cyber Labs operates as part of a larger fund, another very important criteria for us is the ability to turn the newly formed company into a potential category leader, for it to become meaningful to our larger fund.

IT Specialist: Turning to the Israeli startup scene, there was a recent article in Mashable noting that there were 5,000 tech startups in Tel Aviv alone. And of course, Israel has more companies listed on the Nasdaq than any other country in the world except the US. Why is it that such a relatively small country has a startup eco-system that is so large? More specifically, why is it that Israel is so strong in cybersecurity - as far as I understand, there is a strong connection between the military and the fact that those who complete their service in the IDF emerge with strong technical skills on the cybersecurity side?

Yoav: There are multiple facets to this answer. First, entrepreneurship is embedded in Israeli culture. As a young country facing many challenges, the need for resourcefulness and improvisation is embedded in our psyche. Innovation was almost an existential need for our burgeoning country, and the culture persists. Unlike other countries or cultures where entrepreneurs are often looked down upon, (as if they couldn’t get a job in a nice, large, well-to-do company) in Israel, entrepreneurs are put on a pedestal. Second, Israeli institutions of higher learning are among the top in the world, especially around such IT-related subjects as computer science, electrical engineering, mathematics, etc.Third, the IDF and other defense organizations invest significant amounts of resources and time to train their young people. The compulsory army service, lasting 3 years (and for many IT-related professionals, even longer), creates a flow of highly trained and motivated entrepreneurial talent that is accessible to the various companies and startups.

In recent years, we’ve been seeing an ever increasing cyber-security threat, and as such, many more such professionals who receive top-notch training in the Israeli military areever increasingly finding their way to the civilian market. Multinational corporations such as Microsoft, Google, Intel, Cisco, Motorola, IBM, HP, GE, Qualcomm and many others have recognized this advantage and have set up large R&D centers in Israel that further contribute to creating a high level of professionalism in the field.  Finally, the success of such companies as NDS, CheckPoint, Imperva, Trusteer, Guardium, Palo Alto Networks, CyberArk and others specifically in cyber-securityenticesentrepreneurial talent to set up their own companies.

IT Specialist: I'd be interested to hear your take at a general level about the types of cybersecurity threats that you view as facing Israel and the rest of the West as facing? Correct me if I'm wrong, but I believe I saw a recent Tweet from yourself or someone at JVP noting that the western world faced the real threat of a "Cyber 9-11" (this certainly caught my attention!) - do you see this as a serious threat that could actually happen where basic infrastructure such as the electricity grid could be penetrated and shut down?

Yoav: I do believe cyber threats, whether launched by nation states, cyber terrorists, criminal organizations or even rogue hackers, do pose an ever increasing threat to personal, enterprise and national security. Over the last few years,malicioushackers of the types described above have switched from “carpet bombing” to “guided missiles”, meaning they have moved from generic viruses and malware to highly sophisticated APTs (Advanced Persistent Threats). It is not a question anymore of whether you’ll be attacked and whether your existing cyber-defense solutions will be breached, but rather when and how long it will take you to detect and remedy the situation. With new computing paradigms such as cloud, mobile devices (especially “bring your own device” – BYOD), the Internet of things, Machine-2-Machine and industrial Internet, new attack vectors continue to be exploited. Existing solutions such as traditional firewalls, IDS, IPS, Anti-viruses and the like are far from being effective at blocking the majority of these attacks. We actually view this as an opportunity to innovate and to bring innovative solutions to the market.

IT Specialist: Looking at JVP's investment performance, how many funds do you currently run and what are your total assets under management? Can you describe how JVP's performance has been relative to other VC's on a global basis? Are there any particularly successful exits you've had - either via an acquisition or IPO - that have been particularly noteworthy?

Yoav: We currently have more than $900M under management. We have been ranked by Preqin(a leading private equity research firm), as one of the world’s top-10 VCs in terms of consistent performance (based on IRR, TVPI and DPI). All of our funds from the last 12 years are top quartile performers. Over the years, we have invested in close to 100 companies, and have been able to generate 11 IPOs - all of them on NASDAQ, the most of recent of which is QlikTech (NASDAQ:QLIK), and 15 M&A’s–the most recent of which include CyOptics (acquired by Avago), and XtremeIO (acquired by EMC).

IT Specialist: Turning our attention to your specific investments, are there any companies in your portfolio that are particularly intriguing in your view? There was certainly a good bit in the media recently when GE invested in ThetaRay, which is an existing portfolio holding of yours as I understand - what was it about ThetaRay that was so attractive to GE?

Yoav: ThetaRay is indeed one of the more interesting companies we’ve seen in recent years. The company was founded by two professors – Prof. Amir Averbuch from Tel-Aviv University, and Prof. Ronald Coifman from Yale. They are two of the world’s leading professors in the field of applied mathematics. They’ve been working on new algorithms for anomaly detection in big-data. These algorithms have multiple applications in a variety of fields – performance management, algo-trading and also cyber-security. People have been trying to apply anomaly detection to these market needs for years, but have faced many difficulties related to computational complexity, the need to inject manual human insight, detection rates that do not justify the investment and high levels of false positives, requiring highly professional resources to sort these out.

The shortcomings of these previous attempts came primarily from the fact that computational limitations forced companies to resort to processing only a couple of dozens of sensors/indicators at a time. What makes ThetaRay’s algorithms the holy grail of this approachis their ability to digest thousands of indicators at any point in time -actually benefitting from more data rather than having their performance and efficacy degraded. The technology is being applied today to a product in the cyber-security space, allowing for big-data anomaly detection and zero-day attacks detection, prevention and forensics. This unique approach attracted GE as well as other strategic investors that look to benefit from applying the technology and the products to a variety of needs, both internally as well as with their customers.

IT Specialist: For my final question, for startups that may be interested in introducing themselves and their technology to JVP, is there a particular contact person or process they should follow?

Yoav: The best approach would be to simply email us (contact information is available on our site – www.jvpvc.com), with an executive summary and/or a company presentation. The best bet is to demonstrate enthusiasm, market understanding, unique product approach and a winning team – that’s all that is needed!

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