By Steven Scheer
JERUSALEM (Reuters) - An elite Israeli military intelligence unit may once again be about to prove its value to the nation's tech economy as Google's parent eyes cybertech company Wiz for an eyewatering $23 billion.
Alphabet (NASDAQ:GOOGL) Inc , a person familiar has said, is in advanced talks to buy Wiz from founder Assaf Rappaport, a former officer from the famed 8200 military unit, which has built a track record in turning out tech entrepreneurs.
As the war in Gaza squeezes Israel's economy, the deal underscores the resilience of the tech industry, which accounts for some 20% of the country's output and around 15% of jobs. It also highlights the military's role in developing one of Israel's most successful sectors.
Along with universities, Israel's military intelligence and technology units, such as 8200, have provided the leaders for hundreds of tech start ups, helping to turn Israel into what is widely considered the No. 2 tech centre globally after Silicon Valley.
Check Point Software Technologies (NASDAQ:CHKP), Nice, Palo Alto Networks (NASDAQ:PANW), CyberArk, Wix (NASDAQ:WIX) and Waze - bought by Google for $1 billion - are a handful of companies whose founders have military roots.
Rappaport credits the Israeli military for his success, once calling the 8200 unit "the best school of entrepreneurship."
He served there with his "army buddies" Yinon Costica, Roy Reznik and Ami Luttwak, with whom he co-founded his previous cloud security company Adallom in 2012, which they sold to Microsoft (NASDAQ:MSFT) three years later for $320 million.
In 2020, at the outset of the COVID pandemic, the four started cloud cyber security company Wiz, rapidly building it into a company that was given a $12 billion valuation after a $1 billion funding round in May this year.
"In a way it's like raising tigers and then releasing them to the wild," Gili Raanan, founder of Venture capital firm Cyberstarts and general partner at Sequoia Capital said of the intelligence units.
8200 GRADUATES DOMINATE
He said being from an elite intelligence unit is not a requirement for him when investing, however, "90% to 95% of the teams I see are made up made up of 8200 graduates."
"So whether I look into that or not, that's the talent pool I am looking at."
Part of the reason is the free wheeling, meritocratic nature of the units, which allow their graduates to move smoothly into the startup world after their service ends, said Raanan, who was an initial investor in both Adallom and Wiz - now headquartered in New York with R&D in Tel Aviv.
Rappaport did not initially want to accept money from Sequoia for Adallom in 2012 and declined a number of meeting requests from Raanan.
Raanan insisted and he eventually agreed to meet at a gas station about 40 minutes north of Tel Aviv. "Essentially we signed the terms on a napkin in a gas station."
While Israel has mandatory post-high school military service, the intelligence units have the right of first refusal so they "can screen for the best people," said Dror Bin, chief executive of the Israel Innovation Authority.
8200 is the army's main information gathering unit, where 18-21-year old soldiers develop and use tools to gather information, which they pass on to senior officials. It's Israel's version of the U.S. National Security Agency.
Less known is 81, the Intelligence Corp’s Technological Unit that supplies cutting-edge technologies to Israeli combat soldiers.
Rappaport also served in this unit, which has been the launchpad for many cyber, AI and fintech firms once soldiers return to civilian life.
START-UP STRENGTH
Despite the cloud cast over the economy by the Gaza war, Israeli companies have been among the major beneficiaries of the boom in demand for cloud security and have benefited from a number of strong financing rounds.
Industry group Startup Nation Central on Wednesday said in a report that private funding in Israeli startups rose 31% to $5.1 billion in the first half of 2024 from the second half of 2023, with cybersecurity contributing 52% of the funding.
"One might expect the 'Israeli factor' to have a stronger impact on the Israeli tech activity, but the data suggests otherwise," Avi Hasson, Startup Nation Central chief executive, said.
If the Wiz acquisition goes ahead, it would eclipse a $15.3 billion purchase of Mobileye by Intel (NASDAQ:INTC) in 2017 and provide at least $1 billion of tax income into Israeli coffers.
"Even if it doesn't happen, it's a sign of confidence in the Israeli tech sector," said Bin.
"Deciding to make such a big investment in an Israeli based company during time of war means that it's really a good deal," he said adding he expected to see more.
"There are many good targets in Israel today for such acquisitions. And maybe even this potential decision of Google will accelerate investment decisions of others."
Amiram Shachar, CEO and co-founder of Israeli cloud security firm Upwind Security said Google potentially buying Wiz is the "best thing" that could have happened for both the cybersecurity and cloud industries and Israel's ecosystem will benefit.
"It confirms that the cloud is the future," he said, "and underscores the need to build comprehensive platforms, not just feature-specific companies, to protect it."