Beersheva has become one of Israel's leading cyber centers, as part of a national project, with a frenzy of building in the Beersheva High Tech Park. Still, despite names like EMC, Deutsche Telekom, Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), and others, it appears that only this week, with the announcement of the first exit in the high tech park, has Beersheva been officially added to the high tech map. This event was the acquisition by online payment giant PayPal of young Israeli startup CyActive for $60 million.
In addition to auguring well for the future of the southern city, which was long excluded from the Startup Nation to its north, and providing a lopsided return to the company's investors (CyActive raised only $2 million from Jerusalem Venture Partners (JVP) and Siemens) only 18 months after it was founded, Beersheva's first exit, reported exclusively last week by "Globes," is also an interesting story in its own right.
Cofounders CEO Liran Tancman and CTO Shlomi Boutnaru, who met during their army service, both come from a defense-intelligence background. Tancman has a BSc in in biology and cognitive sciences, and spent a decade in the IDF Intelligence Corps and setting up cyber agencies for the Israeli government. Boutnaru served in the Ofek software unit of the Israel Air Force, went on to the Intelligence Corps, and thence to Matrix IT Ltd. (TASE:MTRX), where he was manager of COE (Center of Excellence) Cyber & Security.
The push towards the idea behind the company, which has turned its two founders into multimillionaires and heads of the new information security center being set up by PayPal in Israel on the basis of its acquisition of CyActive, came from Tancman's wife. "I developed an algorithm that learns how things can develop in the future, and my wife asked me why I didn't try to use it to predict how viruses would develop. I took the idea to Shlomi, and it all started from there," Tancman remembers.
"When we worked on CyActive's first prototype, we used to sit until four in the morning, at which point we had to take a break when the battery in the wireless mouse ran down. We had to wait until the battery was recharged before we could go back to writing the algorithm," Boutnaru laughs.
In a year or less, the company grew from its two founders to 10 employees, mostly residents of Beersheva and the surrounding area. The decision to locate the company in the Beersheva High Tech Park JVP cyber incubator, in which it was the first company, long preceded the founding of the company itself.
"I took part in the Magshimim (Achievers) Program, in which high school students are taught about cyberspace and information security in order to train them for work in the field in the army and in private life later on. For 18 months, I traveled to Beersheva to study there, and I fell in love with the city. There's a kind of magic in the air that attracts you to Beersheva, and makes you want to stay there," Boutnaru says.
"I don't know a better ecosystem in the world for a cyber company than Beersheva," Tancman declares. "It has global corporations, a solicitous government, the army nearby, and the university, where many of our employees were trained. All of these things within one square kilometer are making a critical contribution to the success of companies in the sector. It's no coincidence that PayPal's global information security center is being set up here."
One of the interesting questions about any exit, and certainly one that comes at such an early stage of a company that has existed officially for only a year and a half, is why it was sold. Boutnaru dismisses any possibility that reaching a quick exit was in the original plan: "When I met my wife for the first time, I didn't know that I'd fall in love with her. I didn't go around thinking that the next woman I met would be my wife. It's exactly the same with CyActive - that wasn't the goal."
Tancman backs him up. "We weren't for sale. We were busy building the company, but when we made our first contact with PayPal and Guy (Schory, Head of Strategic Initiatives at eBay, R.G.), we realized the potential. The most important thing for us was building something big and significant, and the ability to connect with PayPal and reach hundreds of millions of users all over the world through it, and to protect many assets was certainly a rare opportunity. It would have been hard for us to reach those places by ourselves."
Schory, the leading Israeli at global company eBay, who reports directly to CEO John Donahoe, has has helped guide eBay's mergers and acquisitions in recent years, and knows the local market intimately. "Security is the top priority for PayPal, and our ultimate goal is to keep the money and our customers safe. Israel is considered the world's leading country in cyberspace. About 10 months ago, even before we started talking with CyActive, we made a strategic decision to establish an information security center in Israel.
"We thought it was important to buy an Israeli company in order to promote the local center. We had a vision of how it would be run, how it would enable us to advance and provide better protection for our customers, and we wanted to find the company with the right technology and team for moving this center forward. We looked at a large number of Israeli companies, and decided to choose CyActive because of its stunning innovation, which can accelerate things that are important to us; its talented staff; and the good connection between the companies and their respective visions," Schory explains.
According to Schory, all of CyActive's 20 employees will become employees of the new PayPal center in the Beersheva High Tech Park, which is expected to grow and recruit dozens of additional employees by the end of the current year. The new center is in addition to the PayPal center for detecting financial fraud in the Electra Tower in Tel Aviv, the innovation center of eBay, PayPal's parent company, on Rothschild Boulevard in Tel Aviv, and the development center at Poleg Junction near Netanya.
Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2015
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