Inside Israel's secret startup machine
The Israel Defence Forces' clandestine Unit 8200 isn't just the mythical cybersecurity and spy squad. It's probably the best school for entrepreneurship in the world, spawning hundreds of game-changing tech startups. Here's a definitive look inside
Even in the hallowed annals of teenage hackerdom, this never-before-told story might top them all. In the early 1990s, Avishai Abrahami found himself, as required for most Israelis when they graduate from high school, enlisting in the Israel Defence Forces (IDF). But Abrahami had been assigned to a division he wasn’t allowed to speak of, not even to his parents—a crack cybersecurity and intelligence team known as Unit 8200.
He was given an assignment that seemed right out of Mission: Impossible. Break into the computers of a country that remained in a state of hostility with Israel. The task contained several hurdles: First, figure out how to get into those computers; second, how to crack the encryption; and finally, the monumental challenge, how to access the “enormous amount” of computing power necessary to decrypt the data.
So here’s what Abrahami did once he thought he could breach the targeted computers: He broke into the computers of two other hostile countries and hijacked their processing power to suck out the data held by the first target. A masterwork of spycraft—and a primitive precursor to cloud computing—done without leaving his chair in Tel Aviv.
“If we had to do it with a computer researcher,” says Abrahami, “it would have taken us a year. It took us a day. I’m trying to think what would have happened if someone had discovered it, what a crisis that would have created.”
But (until now) no one ever did. Which is consistent with a unit whose existence, until roughly a decade ago, had never even been publicly acknowledged or identified.
The public did, however, hear about Abrahami, who’s now 45. After leaving Unit 8200, he co-founded Wix, currently one of the world’s leading cloud-based web-development platforms.
“Just from my generation, there are more than 100 guys from the unit that I personally knew who built startups and sold them for a lot of money,” Abrahami says. “There was a team of ten people in one room in the unit. I call it the magic room, because all of them created companies where the average market cap is a half-billion dollars.” Abrahami did his part: Wix’s market cap sits at $1 billion.
Ron Reiter, 31, another 8200 alum, whose startup was just purchased by Oracle for a reported $50 million and who hails from a newer generation, tells a similar story: “There was one person who sold his startup for, like, $300 million to Apple, and another whose company was sold to Cisco for $500 million—and these were both my roommates in Unit 8200.”
Much has been made of Israel’s status as ‘Startup Nation’. Not even the size of New Jersey, with a population smaller than New York City’s, Israel is home to more Nasdaq-listed companies than any country except the US and China. On a per capita basis, Israel boasts more venture capital, more startups and more scientists and tech professionals than any other country in the world.
To understand these dizzying numbers, you need to understand the mysterious Unit 8200. While no one has ever disclosed how large it is, Forbes estimates the unit has, at any given time, 5,000 people assigned to it, all mandated to deploy the latest technology, often in life-or-death situations, with surprisingly little guidance.
“There’s nobody around to tell you how to do it,” Abrahami says. “The culture inside—and it’s by design—is that your superiors just tell you to go figure it out. That gives you the huge freedom to think differently. It’s you or nobody else. And when you’re an entrepreneur, that’s the most important skill. When you do 5 or 10 or 20 of those projects, you’ve just built three things that could be a startup.”
Multiply those three things by thousands of tech geniuses and decades of work, and it’s clear why, as Forbes estimates, more than 1,000 companies have been founded by 8200 alumni, from Waze to Check Point to Mirabilis, the parent company of ICQ. Tech giants like to gobble up 8200 firms like hors d’oeuvres. In the last three years alone, Microsoft bought Adallom, a data privacy firm, for a reported $320 million; Facebook bought mobile analytics company Onavo for some $150 million; and PayPal grabbed CyActive, which predicts hacks, for an estimated $60 million.
So what’s in 8200’s special sauce? After speaking with more than two dozen 8200 veterans, we narrowed it down to five things that, taken together, provide a pretty good blueprint for Startup Nation—and a pretty powerful cheat sheet on how to launch a successful tech startup.
The Screening
Just as the existence of 8200 was barely acknowledged until a decade ago, its history has never been revealed or reported, other than in snippets. Here’s our best take: Unit 8200 predates Israel’s war of independence in 1948. Starting in the British Mandate period of the 1930s, what was then known as Shin Mem 2 (an acronym of the Hebrew phrase for news service) bugged phone lines of Arab tribes to learn about planned riots. In 1948, it was renamed 515—a random number so that it could be discussed without using words. In 1956, the year of the second war between Israel and its Arab neighbours, the name was changed again, to 848.
Unit 8200’s turning point came when Israel’s did, in 1973, after the Yom Kippur War, when the country, which is surrounded by its enemies, was caught off guard by invasions from Egypt and Syria—the largest intelligence failure in its history. A Unit 848 intelligence officer was taken captive by the Syrians, providing his captors with significant information, says Yossi Melman, a veteran journalist on the intelligence and national security beat.
That moment, which led to national soul-searching, resulted in a reboot. The unit would then be known as another random number, 8200. And it would become completely departmentalised, so that various teams in the unit wouldn’t know what other teams were doing. Each squad, like a startup, was pretty much on its own.
More critically, Israel felt it could no longer risk depending on others—specifically, the American tech industry—to give it access to new technologies. So 8200 became the country’s internal R&D hub—the fuel for Startup Nation—with staffing numbers that grew apace and an expanding mission in an internet-driven world. While Israel’s Mossad spy agency is as legendary as 8200 is anonymous, “90 percent of the intelligence material in Israel is coming from 8200,” says Yair Cohen, who served 33 years in 8200—the last five (from 2001–05) as its commander. “There isn’t a major operation, from the Mossad or any intelligence security agency, that 8200 is not involved in.” When Yasser Arafat claimed he had nothing to do with the hijacking of the Achille Lauro cruise ship in 1985, which resulted in the murder of an American, 8200 provided the intercepted phone conversation that proved otherwise. When Israel bombed a suspected Syrian nuclear reactor in 2007, 8200 provided integral intelligence. The Stuxnet computer worm that destroyed nuclear centrifuges in Iran three years later? A CIA and 8200-driven coding masterpiece.
As 8200’s importance grew, so did its clout. While IDF service is compulsory for most Israelis at 18, ev- eryone is screened by the IDF as he or she nears high school graduation—and 8200 gets to pick whomever it wants. Sometimes it begins tracking potential recruits when they’re younger, using an after-school programme for high school tech prodigies and hackers, called Magshimim, as a feeder. “The Harvard Business School has a great screening process, but it depends on who applies,” says Inbal Arieli, 40, who served in 8200 in the late 1990s and by 22 was leading the faculty for the Unit 8200 officer training school. “Unit 8200 can take the top 1 percent of the 1 percent of the country.”
True to its mission, even the recruiting is clandestine. “For the longest time I didn’t even know I was being screened,” she says. Once the unit identifies prospects, it puts them through rigorous interviews, tests and classes—covering everything from communications to electrical engineering to Arabic—that can take more than six months.
It’s essentially a boot camp for the mind. “You are put into small teams where you study, brainstorm, train, analyse, solve problems, from early in the morning to very late at night,” says Arieli. “It’s not a passive approach to information.”
The entrance interviews are conducted not by high-ranking officers but rather by 8200 soldiers in their early 20s, who seek those able enough to take over their jobs. References are then checked from each stage of these young lives.
The Leader
Nadav Zafrir joined Unit 8200 in 2005 and served as its commander from 2009–13. He also founded the Israel Defence Forces’ “Cyber Command”. Zafrir is now co-founder and CEO of Team8, Israel’s leading cyber security foundry, leveraging the talents of Israel’s cyberwar veterans. “Many young Israelis aim to serve in the most elite units,” he says. “Thirty years ago this might have meant serving in an elite combat unit. Today, if you are technically inclined, the dream is to serve in Unit 8200
What are they looking for? Math, computer and foreign language skills are big pluses, of course, but what 8200 really seeks is potential, as measured by the ability to learn quickly, adapt to change, succeed on a team and tackle what others see as impossible. Dor Skuler admits that he was “an awful student in high school, truly an awful student,” when Unit 8200 started looking at him in his junior year, but the people there saw untapped genius, and by focusing on what he could be rather than what he was, they discovered a great intelligence officer who wound up founding three startups.
“Even the screening process at the [US National Security Agency] largely focuses on experience,” Arieli says. “But what does a 17-year-old know about intel challenges? Nothing. A high school kid is busy with movies, boys, girls, fashion, sports—that’s your world—and you’re not busy with terror in Syria or nuclear facilities in Iran, so experience and know-how are not relevant because they don’t exist.”
The Culture
Former 8200 commander Yair Cohen remembers an assignment in the early 1980s, after he joined the unit.
“You need $300 million, but you have only $3 million,” his commander told him. “You cannot get ten people, you have only three people. And you need to look at the future and try to analyse what will be, before your enemy will start to purchase and to use this thing.”
After leaving Unit 8200, Cohen went on to establish the cyber division at Elbit Systems, one of Israel’s largest publicly traded defence electronics companies.
The startup mentality permeates the entire unit, not just the R&D teams who build products. Skuler, the terrible high school student, was eventually put in charge of a team focussed on collecting and analysing signal traffic from Israel’s enemies in order to produce intelligence from that raw data. Skuler recalls threats that he needed to counter so quickly that he’d create a small team with a few engineers “and go into room and figure it out in five days”.
The lack of resources means “sometimes you are constrained to a degree that is almost mind-boggling—and it’s your decision which bet to take,” he says. “It’s like sitting in front of a roulette table, and you have one chip to put on the table.”
Usually, Skuler says, his young team came up with something of value. “I think about that sometimes. Why was that possible? It’s totally nuts. But we didn’t know any better. It didn’t need to be perfect. It could be buggy, it can crash—and you’d need to manually reset systems. But we actually had a working solution in the field in days or in weeks sometimes. Truly unique, magical moments.”
Combining intelligence with naiveté, it turns out, can be a weapon. So can a system that gives a stunning amount of freedom and responsibility to people who in America aren’t even legally allowed to drink.
“Nobody tells you exactly what to do,” says Skuler, now 39. “They tell you, ‘This is the problem, go figure it out.’ With a crazy deadline. So you’re inventing, being entrepreneurial and only understanding what you were doing after the fact. But you have to do it, because you don’t have any other choice to meet the mission you were given.”
Israelis relish arguing with one another; it creates a vibrant democracy and an outlet for blowing off steam.
In the IDF’s combat units, as with virtually every military organisation, discipline and the chain of command trump debate. But in 8200, if soldiers feel decisions by superiors are wrong, they can ignore rank and go as high as the commander of the entire unit. In that way they feel ownership.
The absence of the usual military hierarchy meant that Skuler once found himself alone in “the field” on a phone with “the most senior decision-makers in the country,” because they wanted his personal view on something he’d discovered.
“That’s when I was 19. While my friends in the States are doing their undergraduate work, you’re doing that. By far it was the period in my life where I had the most responsibility and the most impact to other people.” Skuler now applies those lessons at Intuition Robotics, his third startup (not counting another two businesses he launched within Alcatel-Lucent). His latest sees him trying to build “a very complex social robot with a truly simple user experience, with the goal of improving people’s lives.” The interdisciplinary project involves hardware and software, machine learning and computer vision, psychology and design. And he’s doing it with a core team of eight people.
The Motivation
After Kira Radinsky did her initial months-long military training with 8200, she was moved to an even more classified group within the operation, Unit 81, which focuses on providing newly invented technology (typically integrated hardware-software products) to combat soldiers. It encompasses, as best we can guess, about a fifth of Unit 8200’s 5,000 soldiers. While you can find 8200 listed on the LinkedIn profiles of its alumni, Unit 81 is rarely mentioned publicly.
“The unit is like a workshop, like an intelligence-toy factory,” says Melman, the national security journalist and co-author of Spies Against Armageddon: Inside Israel’s Secret Wars. “They produce machines. If you need something, you describe to them what you need, and they do it for you. If you want to produce mines that will be disguised as rocks in the field, then that’s what they will do.”
Radinsky recalls working with peers who are “just insanely amazing—people just like me who started studying in universities at 15. People who did three degrees in parallel sometimes.” But at college, students have no responsibilities to anyone but themselves. In Israel, lives hinge on 8200 and 81 solutions. And that’s the kind of motivation tuition money can’t buy.
“The more people try to accomplish, the more there is a feeling of fighting together like a family,” recalls Radinsky, who spent 2004–07 in Unit 81. “Even more than that, we don’t have a choice—it has to be solved. We are given a problem that will either give or take life. And the moment you understand you don’t have a choice, every action you do has such implications. You just do it by the adrenaline.”
“It’s a hyper-stressed, hyper-worked technical environment,” Skuler says, “where you have to make real choices—always under the gun to make decisions in time to be meaningful to somebody.”
Radinsky, 29, remembers 24-to-48-hour shifts during “special operations”—when she and her comrades would take turns sleeping in the office—or while doing their tech work “in the field”. She remembers once watching a live video feed, waiting to find out whether something they had built would work or not. When it became clear that it would, the group burst into cheers—and headed to a pub. After her service, Radinsky took her life-and-death expertise into the private sector. At Microsoft she developed algorithms that used historical data that enabled her to predict the first cholera outbreak in 130 years (in Cuba).
She’s now co-founded a company, SalesPredict, which provides predictive sales-retention analysis—and is staffed by 8200 alums, who feed off adrenaline and operate as a “family”. She remembers how, in her military days, her group “took joint blame in missions that failed without finger-pointing—because if we win, we win together, and if we lose, we all lose. It’s us against the world.”
“I found that motivating people in the corporate world is not much different,” Skuler adds. “What you’re after is for them to have a sense of ownership.”
SalesPredict operates the same way. “Either you win or you are dead,” she says. And while she knows that the stake here is bankruptcy versus lives lost, that difference motivates her, too. “It doesn’t look as scary to take a risk,” she says, “because I took much bigger risks before.”
The Churn
It stands to reason that the last person to leave the helm of Unit 8200 has already created arguably the world’s top cybersecurity syndicate. Nadav Zafrir, the 46-year-old CEO and co-founder of Team8, runs a private foundry that creates startups from scratch to solve some of the toughest problems in cybersecurity. He served as 8200’s commander for five years, leaving in 2013 after founding the IDF’s “Cyber Command”, an elite group of geeks that oversees the military’s online warfare.
Along with his two co-founders, also high-level 8200 alums, Zafrir raised $40 million in seed money and an all-star lineup of research partners and investors that includes Alcatel-Lucent, Accenture, AT&T, Cisco, Nokia and Eric Schmidt’s Innovation Endeavors. Zafrir is an impregnable firewall when it comes to discussing anything specific he did in 8200. But he will talk about how the unit’s structure is perfectly suited for today’s global economy.
One thing he touts: 8200’s churn. With an average length of service in the neighbourhood of four years, this very advanced technical operation has an annual turnover of 25 percent—a frightening number for most major corporations but a tremendous asset, Zafrir argues, in the fast-moving world of tech. “Every year, Unit 8200 gets this influx of young, smart, motivated and passionate men and women looking at problems from an entirely new perspective,” he says. This often allowed Zafrir to challenge new teams to tackle problems their predecessors had deemed impossible. “We don’t tell them that other people have tried to solve the same problem many times and failed,” he concedes.
The high turnover forces 8200 teams to exercise discipline in designing products and systems. Since many of the developers won’t be around to see their inventions become operational, they have to be built in ways that allow fresh recruits to work with them. And the churn goes both ways. Like all other IDF veterans, 8200 alums must serve as reserves for up to three weeks a year until they reach their early 40s. So for decades more, 8200 veterans get a peek into the latest technology developed by their younger successors—Israel’s cybersecurity as the ultimate in continuing education.
Occasionally, 8200 will lure its best and brightest to stay full-time by turning itself into an incubator. Barak Perelman, a former 8200 captain who served in the unit for six years, until 2013, had dreamt of building a business from scratch.
His IDF bosses had an idea to keep him in the unit: If he could figure out an innovative project that helped 8200, they’d invest in it with manpower. He did exactly that and eventually left to create Indegy, which provides cybersecurity for critical infrastructures such as chemical plants and was born with an assist from 8200. “A win-win,” says Perelman, who adds that this incubation model has been employed several times that he knows of by 8200.
It’s also a win for the Israeli economy, in terms of jobs and wealth created and in the message it sends to the country’s top tech talent. “They know the guy who sold his company for $300 million—they didn’t just read it in Forbes,” Zafrir says. “They think, ‘I know him—I can do $400 million’.”
The Network
Elad Benjamin’s father, Menashe, spent a quarter-century in Unit 8200, where he commanded a subdivision, and then launched a company that created medical imaging software. “Had he not come away with what he came away with from 8200, I think it would have been difficult for him to start his company,” says Elad, 41, who feels the same way about his own startup, also in the medical field. “So the thread kind of runs along.”
But it goes much deeper than that. When Menashe’s company was eventually sold to Kodak, it had 55 employees—one-third of whom were 8200 alums. Similarly, about half of Elad’s employees today are from 8200. His closest friends are as well.
One can’t underestimate the importance of the unit’s alumni network in fuelling Startup Nation. “The way you do it is you get one of your buddies from the 8200 tech unit who is about to get released, and he has all the release dates of all the other folks from that tech unit—and we’d just pick ’em off one by one,” Benjamin says. “We give them a phone call and say, ‘Your ex-team-leader is now here with us. Why don’t you come in and take a look?’”
Recruiting this way eliminates many steps. “You know you are getting a combination of confidence level and skill level with them,” he says. “These are 24-year-olds who’ve just spent the last five, six years dealing with live, real-world, mission-critical systems and products and scenarios. What they’ve done is real. It’s not theoretical.” And it will pay entrepreneurial dividends for decades to come.
THE FUTURE
Can 8200 launch a tech boom for Arabs, too?
There’s a downside to 8200’s otherworldly success. “The military is not the ideal way to produce people who are innovative in tech. This is not a prescription for the rest of the world, and it’s not something we want for ourselves,” says Saul Singer, whose 2009 book, Start-Up Nation, helped publicise the 8200 phenomenon. “We want this to end. So the question is, how do you do this without the military? Why can’t our education systems do this? Education has to be reinvented.”
One hopeful sign: Israeli Arabs, who are not required to serve in the military (but can volunteer) and thus can’t tap into the 8200 alumni network, are beginning to benefit from it. The result offers some small hope of reduced tension between Jews and Arabs in Israel, not to mention the conflict with the Palestinians.
While they make up about 20 percent of Israel’s citizenry, less than 2 percent of the country’s tech workers are Arabs, and there is not a single Arab-led company on the Tel Aviv Stock Exchange. Part of that is because they don’t get the tech-based military training, and part is cultural: Arab parents often push kids toward safe and secure jobs rather than risk failure with startups. But Israeli Arab entrepreneurs like Jafar Sabbah may be able to turn that around. Even one major Arab success story would indicate to other Arabs that it’s possible for them, too. Sabbah, who studied computer science at the Technion and earned a law degree from Hebrew University, is a good bet to pull it off. He’s now started three companies. While working with three Israeli-Jewish entrepreneurs in 2000 on his first startup, an Arab internet portal called Triple Vision, Sabbah noticed that one of them “always wrote the numbers ‘8200’ next to his name on business plans”. “I finally asked him why he does this.” His colleague laughed, “And told me the story that Unit 8200 is a big deal in high-tech.”
Sabbah now knows that big-time. Six years ago, a Unit 8200 alumni group, run by Inbal Arieli of the non-profit Start-Up Nation Central, started reaching out to Arab communities to encourage the best entrepreneurs to apply for a rigorous six-month programme taught by current and former 8200 soldiers. “We were trying to bring the unit’s DNA to a bigger audience,” she says.
The idea was very controversial at first. “I was told by investors in venture capital firms here that for an Israeli Arab to join an 8200 programme, even if it’s just a civil one, that’s too much to ask,” says Arieli. But she persisted.
This course is almost as hard to get into as 8200. Each year, over 300 Jewish-run startups in Israel apply and only 20 are accepted. Sabbah, whose third startup, Beam Riders, is building a cloud-based system to enhance cognitive and learning skills through neurofeedback and neuro-stimulation methods, was the first Arab Israeli accepted, in 2014.
Sabbah says he learnt a tremendous amount from the programme, which covers everything from product design to marketing to fundraising. And, of course, his circle has widened. “Now I have many connections and also visibility,” he says. “And when I talk to investors as a graduate of this programme, they say ‘Wow!’—and it’s good for me.”
With folks like Sabbah paving the way, it’s not too hard to imagine that someday Israel’s Arab citizens will even start finding their way into Unit 8200 itself. And the world will say “Wow!”—and that will be good for Israel, too.
(This story appears in the 24 June, 2016 issue of Forbes India. To visit our Archives, click here.)
