Vector Capital looks to move Israeli security firm KELA into North America

Vector Capital’s $50 million investment in KELA Group is its third deal in Israel, a market the firm has been covering for more than 15 years, according to Managing Director Matt Blodgett.

San Francisco-based Vector previously backed Aladdin Knowledge Systems, like KELA a cybersecurity investment, and Precise Software Solutions, both companies founded in Tel Aviv. Another portfolio company, ad-tech firm Sizmek, also has large operations in Israel.

“We were connected to [KELA] through a mutual relationship, a former technologist and investor in Israel that we both know well,” Blodgett said.

The company had not yet taken institutional capital: “Rather than raise money from VCs, they were able to develop a product and sell it and use the income from their customers to finance the growth of the company.” Those customers include Nippon Telegraph and Telephone, Toyota, Scotiabank and Capital One.

KELA’s product, RaDark, offers darknet monitoring and threat detection for enterprises and governments. “If you want to scare someone, it’s pretty easy to scrape the dark web and find exploits that are two, three, four years old,” Blodgett said, referring to points of vulnerability that might already have been addressed. “Teams are very quickly swamped with things to investigate.”

KELA’s platform can tell the difference between threats that demand an immediate response and issues that require simple notification, he explained.

“Huge amounts of money and national security are at stake. The Target breach cost that company $250 million, not factoring in any associated brand damage.” A service that could prevent such disasters would “very rapidly” pay for itself, Blodgett said.

KELA was founded in 2009 by veterans of the Israeli military’s Unit 8200, a signals intelligence division with connections to the country’s startup scene. Co-Founder Nir Barak is CEO.

The majority of the company is owned by its founders and employees, with Vector’s investment representing a minority stake. The deal is out of Vector Capital V, which closed on $1.4 billion in February 2017.

Investing in European and Israeli software companies that have yet to meaningfully penetrate the North American market has been a theme for Vector, one that KELA fits.

“The major thesis for this investment was that the company recognized that to realize their long-term growth ambitions and value creation, they would like to develop a modern, systematic and thoughtful and go-to-market effort, and especially one that can reach the Fortune 500 or the large enterprises in the U.S.,” Blodgett said.

As well as supporting additional product development, Vector plans to supplement the company’s technological talent with the marketing experience of operating partners.

As recent examples of this strategy, Blodgett mentioned CloudSense, a London commerce software company in which Vector invested $77 million last November, and Emarsys, a B2C marketing software provider from Vienna that opened its first U.S. offices in 2015 with $33 million in funding from the firm.

Action Item: For more on KELA Group, visit https://site.ke-la.com/index.php

The city of Haifa, Israel, overlooking the Bahai Gardens and the harbor. FredFroese/E+/Getty Images