Software-focused YL Ventures in early April led a $2.5 million seed-stage funding round in startup Karamba Security, which is developing software to prevent intruders from hacking into the electronic systems of new cars.
Israel-based private equity investor Glenrock Group also participated in the funding in Karamba, which highlights an important concern as the connected automobile takes off and more cars are wired.
YL Managing Partner Yoav Andrew Leitersdorf said that connected cars are especially vulnerable to hacking because most come equipped with unguarded interconnected electronic systems networked to the Internet.
He pointed to security breaches over the past year involving Chrysler, Ford and Tesla vehicles.
Last summer, Chrysler recalled 1.4 million Jeep Cherokee SUVs and other models after so-called white-hat hackers — those with non-nefarious motives — easily commandeered the driving functions of a Cherokee rolling down a highway.
Leitersdorf said hackers use what the industry calls a dropper, a small piece of code that implants malware into the software one of the electronic-control units populating the vehicle’s various systems. With the malware in place, hackers can take control of the vehicle and put the safety of the driver and others on the road at risk, he said.
Karamba’s software secures the ECUs and protects a car’s networked components by detecting and blocking the attempted intrusions. Karamba has offices in Detroit and Israel.
“We talked to the car manufacturers as well as their Tier 1 suppliers, and they told us that cyber security is becoming a priority within the industry,” Leitersdorf said. “We looked around to see if there were vendors that the manufacturers and suppliers buy from. There were really very few. So, we decided that it could be a good area in which to make a few investments.”
YL is investing out of a $27.5 million second fund, with a focus on early-stage companies within the enterprise software sector, especially Internet security, such as big data, cloud computing, cyber security, Internet of Things and Software-as-a-Service. Crunchbase lists 15 investments for the firm dating back to 2007.
This is, however, the firm’s first investment in a new business targeting the auto industry.
Leitersdorf said completely autonomous cars now in development by tech giants Google and Microsoft and the major auto makers will be even more vulnerable unless security software becomes an integral part of a vehicle’s electronics systems, such as collision avoidance and speed controls.
“The arrival of self-driving cars sets up a huge market opportunity,” Leitersdorf said.
The consultants Research and Markets noted in a recent report that the market for cyber security installed on connected cars will grow 15 percent annually over the next four years.
It pegged the current market for all connected car components at more than $42 billion but did not break down the security portion of the market.
Tom York is a San Diego-based contributor. He can be reached at tom.york@gmail.com.
Action Item: For more info about YL Ventures, Jewish Business News interviewed Yoav Leitersdorf nearly three years ago when he raised his $27.5 million fund: http://bit.ly/1U3e7BL
Photo of people looking over the BMW i Vision Future Interaction concept car during the 2016 CES trade show in Las Vegas, Nevada, Jan. 7, 2016. As more cars connect to the Internet, YL Ventures-backed Karamba aims to provide cyber security defense. Reuters/Steve Marcus
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