Demand for Israeli security solutions remains strong -- and is growing

KT: Indigo’s objective is to maximize our limited partners’ ROI and therefore we are very exit-focused.  Part of our due diligence process is road mapping a potential portfolio company’s progress from the time of investment through the eventual sale or IPO.  Any factor that may hinder our ability maximize value is taken into consideration and informs our investment decisions.  Business integrity and customer privacy are both areas of premium importance and any improper activity by a portfolio company, whether real or perceived, is unacceptable. In practice, we have not seen any improper information sharing.

HSNW: To shift gears a bit, has the homeland security market been affected by the global recession that has negatively impacted many industries around the world over the past several years?

KT: Israel serves as an important market and real-life testing laboratory, but the local market is very small (Israel’s total population is only 7.8 million), so any company interested in scaling must be internationally focused. On one hand, the global recession has slowed down spending in certain sectors like pure defense, but on the whole, leading industry analysts see continued growth in global spending in the broader security market, and that is what we generally see here.  Technology is increasingly being relied upon to increase efficiencies and functionality while reducing costs and installation, integration, and implementation times. Israeli companies are at the forefront of technological breakthroughs, spending more on R&D per capita than any other country in the world and thus have continue to maintain an important strategic position in the global security market.  Although the pace of global spending has slowed recently, but the demand for Israeli security solutions remains strong and is growing.

HSNW: What is the current state of PE activity in the Israeli market?

KT: There are very few pure private equity firms in Israel so your question is a difficult one to answer.  However, Israel’s venture capital market is mature and is better tracked.  A recent survey by Deloitte Brightman Almagor Zohar found that 87 percent of Israeli venture capitalists predict reduced activity in 2012, and I think that this statistic accurately reflects the general sentiment among investment professionals. 

Indigo’s investment horizon is three to seven years out, so we are less focused on market sentiment today and more focused on where we expect the demand for security technology to be in the future.  Less general investment activity means less competition for deals and better leverage when negotiating with companies. 

HSNW: Over the past decade there has been a surge in technological developments ranging from drones to explosives detectors and biometrics. Are there any particular technologies or companies that your company has taken a keen interest in?

KT: One area that we like very much is mobile device-based security solutions.  We recently led an investment round in NowForce. This company has developed a cloud-based command and control platform for emergency response organizations of all sizes (police, fire, EMT/paramedic, etc.) that is deployed on the responders’ GPS enabled phones.  This solution provides a very low cost yet effective emergency response platform that can be scaled rapidly, centrally managed, and easily customized.  The platform has already been used to deploy responders in over 150,000 real life emergencies and has helped saved many lives. The company has also developed additional applications including panic buttons and location management.

We have also been focusing on explosive and contraband detection, video surveillance and analytics, smart sensors, and access control.

HSNW: Finally, in terms of the homeland security industry, what sectors do you anticipate as having the most potential for sustained growth in the coming years?

KT: We see a lot of upside for video management and analytics as the number of IP cameras installed around the world continues to grow and the amount of data captured and stored is already at levels that cannot be monitored by the human eye alone.  We also see strong demand for authentication solutions, access control, and IT/cybersecurity.