(Bloomberg) -- Israeli venture capital firm Cyberstarts said its first fund has generated yearly returns of 170% since it was formed in 2018, as the country’s cybersecurity market has boomed.

Cyberstarts focuses on Israeli cybersecurity startups and is backed by investors such as Sequoia Capital.

Its first $54 million fund has generated a significant internal rate of return after early bets on Israeli cybersecurity founders, Cyberstarts founder Gili Raanan said in an interview. Several startups in its portfolio have been acquired for a total of $1.5 billion or went on to raise further funding.

Another early-stage fund of $60 million, closed in 2022, has generated an internal rate of return of 115%, Raanan said.

IRR is commonly used in venture capital to assess and show off a fund’s performance, sometimes before its investments have matured. The number can change depending on what happens to the portfolio companies, and it’s unlikely to be the sole success metric considered by a fund’s limited partners. Venture capitalists rarely disclose these numbers publicly, making it difficult to compare Cyberstarts’ performance directly with industry peers. Its IRR numbers include both its realized and unrealized gains, the company said. 

Cyberstarts has invested in 22 companies over the past six years, five of which are so-called unicorns valued above $1 billion, including cloud security company Wiz and crypto startup Fireblocks. Its portfolio has raised $1.8 billion during the last three months, with Wiz picking up $1 billion in fresh funding from major names in venture capital such as Andreessen Horowitz and Lightspeed Venture Partners and raising its valuation to $12 billion.

Four Cyberstarts companies were bought since the beginning of 2023 for a combined $1.5 billion, including cloud security company Axis, which was bought by Hewlett Packard Enterprise Co. last March and app security platform Bionic, acquired by Crowdstrike, Inc. last September.

Raanan said interest in cybersecurity companies was unlikely to abate any time soon, with governments and companies raising their cybersecurity budgets in response to attacks by hackers and nation states like Russia, Iran, North Korea, and China.

“Add to that the introduction of generative AI, which allows for threats to expand at a much faster pace,” said Raanan. “It leads to a threat level that I don’t recall seeing before. All of this creates a perfect storm for cybersecurity.”

The figures underline the resilience of Israel’s cybersecurity industry, which has seen significant fundraising activity and mergers and acquisitions despite the ongoing war in Gaza. In recent months, Palo Alto Networks Inc., Crowdstrike Holdings Inc., and Check Point Software Technologies Ltd. each acquired multiple Israeli startups. Israeli cyber firms raised $846 million in the first quarter of 2024, accounting for nearly half of all tech funding in the country, according to nonprofit Startup Nation Central.

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