YL Ventures recently raised $400 million in seed money to invest in roughly 12 Israeli cybersecurity companies in the next five years.
SC Media caught up with John Brennan, senior partner at YL Ventures, who talked about the company’s focused strategy on Israeli-based cybersecurity companies, how they match U.S. CISOs with technology innovators in Israel, and how cloud-native technologies figure into the overall strategy.
YL Ventures’ track record includes Israeli cybersecurity unicorns Axonius and Orca Security, along with several successful, high-profile portfolio company acquisitions. These include: Twistlock, acquired by Palo Alto Networks; Medigate, acquired by Softbank-backed Claroty; Hexadite, acquired by Microsoft; and FireLayers, acquired by Proofpoint. YL Ventures has offices in Silicon Valley and Tel Aviv, Israel.
Can you describe the types of companies you plan to invest in?
We’re very focused. We only invest in seed-stage, Israeli cybersecurity companies. We are looking for teams with an idea. We only invest in Israel. And only cybersecurity. There are great cybersecurity companies all over the world. But we’ve decided that the best way to deliver returns for our private investors is to focus. Because Israel has the most dense and greatest source of cybersecurity talent in the world and we have an office with 10 people there, we can and will meet with every entrepreneur in this ecosystem and believe we have the ability to win deals with the best founders in a very dense pond.
What are the elements of a company that you look for?
Once you get past the criteria, Israeli seed-stage company, we focus on team. We look at the quality of the founders as individuals, their domain expertise, and the ability to recruit and think in terms of building a big business, not just a great technology. We try to match up those brilliant teams in Israel with big market problems. We have more than 115 venture advisors, almost all are CISOs and almost all are in the United States. We are focused on the global market, but the U.S. market to start. We look at 150 teams a year and make about three investments. We’re not looking to index the market: we want to invest in the best founders.
Do companies that are cloud-native have an advantage when it comes to obtaining funding?
I wouldn’t say cloud-native is part of our criteria. But cloud has become a big focus. Generally, our companies are born in cloud. Certainly, we want to invest in markets that are growing and cloud has become important. However, we have to be careful because there are some areas where CISOs tell us that to truly be disruptive, they will need a hybrid solution.
So while it’s important to be cloud-native, start-ups have to remain flexible and listen to the market?
Yes. In some areas CISOs will tell us they need a hybrid solution. They want to make one purchase: one for on-premises, one for cloud. With identity, for example, a lot of CISOs will say that they don’t want an on-prem and a cloud solution: they want an identity solution. We have to adjust to what the customers want.