Former Mossad chief Yossi Cohen, who now leads local investment operations at Japanese investment giant SoftBank, is joining the board of directors of Israeli startup Claroty.
Claroty, founded in 2015 by cyber-venture group Team8, focuses on protecting industrial devices and systems and critical physical infrastructure including factories, production lines, water and energy infrastructure – areas that have been subject to increasing hacking attempts, including ransomware attacks. Among the company's customers are pharma and food companies, automobile manufacturers and critical infrastructure facilities.
Cohen's appointment comes after Claroty has recently clinched two deals that are exceptional in their scope in the local cybersecurity industry: it raised $400 million from SoftBank in one of this year’s biggest funding rounds in Israeli high-tech, which brought the total amount raised by Claroty to $635 million.
The company also announced the purchase of Israeli medical cybersecurity firm Medigate for $400 million, paying for the startup in cash and stocks. This is apparently the largest ever acquisition of one Israeli company by another in the local cybersecurity market.
Claroty reached unicorn status in June after raising $140 million at a valuation of over $1 billion. The company did not report its valuation in the current round of fundraising, but claims it has doubled – putting it at an estimated $2 billion to $3 billion.
“Our revenues, number of customers and employees have all doubled over the last year,” says Yaniv Vardi, Claroty’s CEO.
“During the pandemic there was a six-fold increase in cyberattacks on industry,” Vardi says. “The industrial world is linking more and more devices to the internet in order to become more efficient and competitive, but this exposes it to trouble such as hackers.”
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Claroty is now planning to expand the products it develops and offers, and is becoming seriously interested, for instance, in the realm of cybersecurity at hospitals. Attacks on such facilities have greatly multiplied in recent years. Indeed, in Israel there was a much-publicized ransomware attack on the Hillel Yaffe Hospital in Hadera in October.
This is the reason Claroty purchased Medigate, since the latter has developed systems for protecting hospitals and health organizations. These systems can supervise and control medical devices and protect them from cyberattacks. Medigate was founded in 2017 by Jonathan Langer (CEO), Itay Kirshenbaum and Pini Pinhasov, raising a total of $50 million. The company works with hundreds of hospitals around the world; its estimated annual revenue is in the tens of millions of dollars.
“They have a strong lead in this realm. It’s no small acquisition, but we’re going with the leading company in this field,” says Claroty's Vardi.
In the wake of the acquisition, 140 Medigate employees will join Claroty, which has 280 employees, bringing its total roster to 420.
“Buying Medigate is another step in Claroty’s vision of securing all physical systems that are connected to the internet in different industrial and health sectors and in different organizational environments,” says a company source.
The main linkage between the two companies is that both of have expertise not only in protecting systems but also in mapping out whatever devices are linked to an organizational system – whether it's inspection systems in a factory or diagnostic equipment in a hospital. “Security managers in such places don’t know what’s connected to the internet, and you can’t protect what you don’t see. That’s our competitive edge: mapping these networks and immediately identifying their vulnerable spots,” Vardi notes.
The significant challenge facing Claroty and Medigate lies in the fact that critical infrastructure is often an alluring target not just for hackers but for states, governments and intelligence organizations that possess advanced and sophisticated resources and cyber-offensive capabilities. This makes it harder to protect such infrastructure.
“We know how to defend ourselves even against attacks by foreign states,” Vardi says. “Industrial companies, food manufacturers and hospitals connect unprotected products to the internet, leaving them exposed to hackers, regardless of who are they are. The vector opened up to a hacker is the same vector, be it a state or a group of criminals.”
Competition and challenges
Claroty must also contend with a lot of competition. Among its challengers are Israeli companies Axonius and Aramis, which deal in IoT (internet of things) security, protecting internet-connected devices, as well as the American company Nozomi Networks, which focuses on industry, competing with Claroty in much of its business. Microsoft has also entered this field recently, after purchasing the Israeli company CyberX.
For his part, Vardi is convinced that after purchasing Medigate, Claroty will be able to offer more comprehensive cybersecurity solutions than its competitors. The company cites a report by the tech research company Gartner, focusing on protection of critical infrastructure. The report says that 80 percent of critical infrastructure-related companies will abandon their current cybersecurity providers in order to better confront risks to both physical facilities and to information, by seeking to embrace all-inclusive solutions.
Claroty was founded by Amir Zilberstein, the company’s previous CEO and now an active member of its board of directors, along with Benny Porat, VP of technology, and Galina Antova, VP of business development. Vardi himself came on board as CEO in 2020. The present round of investment was led by SoftBank’s Vision Fund 2, Bessemer Venture Partners and Schneider Electric. Current investors ISTARI, Team8 and Standard Investments (formerly North 40) also participated.
Among the venture funds invested in Medigate are Blumberg Capital, USVP, Partech, YL Ventures and Maor Investments.
Yossi Cohen, the former Mossad chief who is overseeing activities at SoftBank Israel, had this to say: “Initiatives involving digital transformation are currently driving the vital physical systems we depend on for our basic needs. Thus, securing these systems ultimately reduces the risk to human lives.”
Nadav Zafrir, the founder and CEO of Team8, adds that “Claroty’s move to secure the area of health services, following its last round of fundraising, further bolsters its standing as the leading global platform of industrial cybersecurity for organizations in a wide of areas.”