Six years ago, Jerusalem Venture Partners created a digital media incubator, and the experiment has gone so well that this May, the 20-year-old firm — among Israel’s best known and most successful venture outfits — is opening its second incubator. The focus this time: cybersecurity.
Earlier this week, I spoke with partner Gadi Tirosh about the firm’s shift in attention, how the incubator will work, and why U.S. companies should care. Our conversation has been edited for length and clarity.
JVP is launching what it’s calling the National Cyber Security Incubator. It sounds very official, even government related. Is it?
It’s a commercial initiative and part of JVP. Cybersecurity was always one of the main themes with JVP’s portfolio. We invested in quite a few companies in that space, including Magnifire [an application firewall company that sold in 2004] and more recently, Navajo Systems [a company that encrypted and decrypted corporate data and was acquired in 2011 by Saleforce.com].
Because there’s [such a growing need for cybersecurity], as we’ve seen recently from [security breaks] at Sony, New York Times and Twitter, where the attackers are already on the inside and probably have the equivalent of a dormant agent within [companies’] networks, and because we see some really great technical entrepreneurs with some really interesting ideas about the next stages of cybersecurity, we decided to double up on that theme.
How will the incubator work?
An entrepreneur comes to us with [his] idea, which is usually in a very embryonic stage and could even be two or three ideas. It’s sometimes somebody we know, now that some entrepreneurs are starting their third companies with us. And we work with them and help polish the idea and build the team and set up the product.
And how much do you invest?
Early on, we get 1:5 government leverage on our investment, so the first $100,000 that we put in, the government puts in $500,000. So companies have about $600,000 to get the product to market. Unique to JVP is that we don’t stop there. The incubator operates as part of a larger fund, so those who graduate from the incubator get follow-on investment from the main fund, up to several million dollars. We usually bring in another VC to help us with the investment, too.
Will the government invest more than $500,000?
How much of the company do you buy with your funding?
It depends on the development of the idea and on the entrepreneur, but [typically] between 30 and 40 percent ownership.
You’ve established a lot of processes through your first incubator, JVP Media Labs. What has that experience taught you that you’ll apply to your new incubator?
It’s actually worked quite well for us and has [spurred our] appetite to create another one. We’ve already had three exits [including the sale of data optimization startup Zoomix to Microsoft in 2008]. Also, when you have critical mass and the set-up is pretty unique, you get a lot of attention. The building we reside in used to be the national Mint building and was used to print money until about 25 years ago. We came in four years ago and renovated the place, and we now have about 250 young entrepreneurs across 12 companies sitting together with us in that complex. And as you can imagine, they get a lot of attention. Just in the last couple of weeks, [representatives from] Proctor & Gamble, Samsung, Fox Network and Vivendi have visited. [Individually], any one of those startups probably wouldn’t be able to draw that level of interest.
Why is the new incubator in the southern city of Beersheba instead of Jerusalem?
There are a few things that are coming together there [including proximity to Ben-Gurion University and its students] and the communication core of the military, which is moving to that city and was always one of the main sources of new talent into startups.
Do you aim to have a dozen startups in the cybersecurity incubator?
Yes, we hope to build up to about 12 startups, as with the dozen we have in our Jerusalem incubator. We already have two [that we’ve funded] and two more [coming online soon]. But there will be a cap on how many create because at the end of the day, it is a limited, well-defined space, and we’re not sure right now that there’s room to incubate more than 12 companies in the next few years without them stepping on each others’ toes.
What are some of the concepts you’ll be exploring?
You have the concept of the honeypot, where you set up a fake machine [with no data] within your network to attract hackers and catch them. Another interesting area of technology centers on anomaly detection – monitoring huge amounts of data and discovering anomalies with the stream of communications and networking. It’s very much like dormant agents in the real world; every once in a while, they raise their head and send a signal back. In the virtual world, it’s a very short, random signal, but through very sophisticated anomaly detection, you can track those kinds of things.
Another theme we’re [exploring centers on] the fact that many future [cyber] attacks won’t be from traditional PCs and servers, but from the proliferation of mobile devices. We’re interested in the different and unique ways that entrepreneurs are finding to defend those new devices.
Image: Photo of Gadi Tirosh, courtesy of Jerusalem Venture Partners