In February, Check Point Software Technologies, the flagship of Israel’s information security industry, announced it was buying the Israeli startup Hyperwise Security.
The backstory to the deal was the three founders of the startup, all veterans of the elite Israel Defense Forces intelligence unit 8200. Starting up their company just two years earlier with an investment of only $2 million, they became millionaires when they sold their company for what was rumored to be as much as $80 million.
No less interesting a story, but one that received very little attention at the time, was that it closed the circle that connected the three most influential figures in the Israeli information security industry, now known in Israel simply as “cyber.”
Gil Shwed, Shlomo Kramer and Mickey Boodaei, the granddaddies of Israeli cybersecurity, were reunited after years of parallel but separate careers in the field.
Shwed has led Check Point since its founding, but Kramer left the company way back in 1998. In the intervening years, together with Boodaei he helped build Imperva, another cybersecurity company that is now traded in New York and has a market cap of some $1.8 billion. Kramer now runs a new startup called Cato Networks, which is, needless to say, also in the field of information security.
Kramer invested in many cybersecurity firms. One of them was Hyperwise, for which he provided the $2 million in backing .
Boodaei, who is less well-known but no less active in the cybersecurity arena, was party to another Check Point. His chief claim to cybersecurity fame is as a co-founder and CEO of Trusteer, before it was sold to IBM in 2013 for over $700 million. After that, he became a high-tech investor, and was involved in a large number of interesting deals in the cybersecurity field. In April, not long after buying Hyperwise, Check Point also acquired Lacoon Mobile Security, in which both Boodaei and Kramer had invested, for an estimated $100 million or so.
Twenty-two years after it was founded, Check Point not only remains a force in the cybersecurity world, with a market cap of $14.5 billion, but it has also created a generation of investors, founders and executives that has played a key role in the phenomenal rise of Israeli cybersecurity.
Like the PayPal mafia
Indeed, the cybersecurity brotherhood of Check Point alumni is reminiscent of Silicon Valley’s so-called PayPal mafia, a group of founders and former employees who used the millions they collected when the online payment company was sold to eBay to became the serial entrepreneurs of an enormous number of successful startups.
It is hard to quantify the contribution of the Check Point “mafia” to Israel’s economy, but TheMarker estimates that its has been involved in over 30 cybersecurity companies, as investors or founders. Half of these firms have been sold to multinationals such as IBM and Microsoft or Israeli cybersecurity companies like Check Point, while others have gone public.
It’s not just the mafia members who profited: The Israeli government collected about $1 billion in taxes and intellectual property royalty payments, for the transfer abroad of technology developed in Israel, from the sale of Trusteer alone.
The “mafia” is responsible for creating thousands of good jobs in Israel. After it was sold to IBM, Trusteer added 100 people to its workforce of around 300 before the sale. Imperva employs about 400 in Israel, and Check Point has 1,700 employees. The combined market value of Check Point, Imperva and Palo Alto, all publicly traded companies, is nearly $30 billion.
Standouts from the Paypal mafia include Peter Thiel and Elon Musk, and companies such as Tesla Motors, LinkedIn and YouTube. The Check Point mafia, in contrast, has focused on the world they know best — cybersecurity.
The figure that stands out the most among this group is Kramer, who is considered the godfather of Israeli cybersecurity, an investor and entrepreneur with a long track record of success. Boodaei, previously under the radar, become an active investor since he sold Trusteer.
Boodaei was not a member of the founding generation of Check Point, but as an officer in the IDF’s communications branch he put the company’s products into use. After completing his military service, he established an information security consulting firm together with Amichai Shulman, and with the experience they gained as consultants the two founded Imperva, one of the biggest cybersecurity companies to come out of Israel.
“After two years of consulting we began to design a product based on what we saw in the field and to present it to people,” Boodaei recalls about the beginnings of Imperva. “One of them was Shlomo Kramer, who left Check Point before that and had become a sort of venture capital fund. He told me he was sick of it and he wanted to do things. He joined and we founded Imperva.”
After five years at Imperva, Boodaei left in order to found Trusteer, which he ran for almost seven years until it was sold to IBM.
Web of investments
As of 2015, Boodaei and Kramer have woven a web of investments that encompasses a large part of the Israeli cybersecurity industry. The two have invested together in at least seven startups, including Shahar Kaminitz’s Insert Mobile Technologies and Comilion. Kaminitz sold his Worklight startup to IBM in 2012 for $95 million.
In addition to their profits from Trusteer and Imperva, Boodaei and Kramer have at least four other exits to their credit as investors and founders: As well as the sale of Lacoon and of Hyperwise to Check Point, their startup Watchdox was bought by Blackberry for some $100 million and their Skyfence Networks was bought by Imperva when Kramer was its CEO.
All told, in under two years the pair have sold companies for a combined $300 million to $350 million. Industry sources estimate that since the beginning of 2015, Kramer has pocketed some $50 million from exits.
The ties within the group continue. Another investor-entrepreneur member is Rakesh Loonkar, a Trusteer co-founder. Despite having no connection to Israel, he has invested in dozens of Israeli startups, in most cases together with Boodaei and Kramer.
In the past year Boodaei and Kramer were involved in the sale of the Israeli cybersecurity firm Aorato to Microsoft for around $200 million. Boodaei says the “mafia” share interesting investment opportunities with each other, but do not necessarily invest together.
Another person involved in this same small world is the founder and CEO of Santa Clara, California-based Palo Alto Networks Nir Zuk, which is traded in the United States at a market cap of $14 billion. Zuk was one of the first employees of Check Point, but today he is one of the company’s biggest competitors. Among those who have invested in Palo Alto are Kramer and Loonkar.
In an interview in TheMarker, Shwed claimed that he was not involved in closing the latest deals with his old partner Kramer, and they do not coordinate between them.
“I didn’t speak with Kramer about the acquisitions. I trust him, I think he’s a smart person and value his opinion very much. We have a friendly relationship, we meet, but actually in business matters we haven’t talked. Some people make deals because of friendships and not because of business, but I try very hard to avoid such influence. I don’t want for it to influence our professional judgment, and so the professional levels do the work without my involvement,” says Shwed.
Close colleagues of Kramer have confirmed Shwed’s claims.
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