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Israel's elite military units spawn tech entrepreneurs

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Google reportedly in advanced talks to buy Wiz for up to

$23b

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Wiz owner a former officer from 8200 intelligence unit

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Deal shows resilience of Israel's tech industry despite

war

By Steven Scheer

JERUSALEM, July 17 (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 Inc ( GOOG ) , 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 ( CHKP ), Nice,

Palo Alto Networks ( PANW ), CyberArk, 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 ( 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 ( 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."