Israeli tech entrepreneur Dor Knafo was in the headlines last week following the sale of Israeli cloud security company Axis Security to HPE Aruba for an estimated $400-500 million. Axis cofounder and CEO Dor Knafo was born in Ashdod and served in the Israeli army 8200 intelligence unit. He is modest, quiet, with his feet on the ground, and especially grateful to the people who supported him along the way, among them the first investors in the company; Dan Amiga and Gili Raanan whose Cyberstarts venture capital fund helped found Axis.
Knafo and Raanan tell "Globes" about the process they underwent prior to selling the company to HPE. They also spoke about the concerns over the Israeli government's planned judicial reforms and their impact on the domestic tech sector.
Knafo says, "I met Gili exactly when he founded Cyberstarts, which was ideal for us (Knafo and his cofounder Gil Azrelant) as an entrepreneur with his first company which had never sold anything. It was ideal that there was a proper strategy, and we came along and knew exactly what we were going to do in the first year. It gave us a very good infrastructure to work with."
The fine line between courage and naivety
In the initial months after Cyberstarts' first investment in Knafo and Azrelant's company, the entrepreneurs went to the US to map the problems that data security managers face and adapt their product for them. "When we started, we flew to the US for two months," Knafo recalls. "In those two months, we met about 60 data security managers, it was really intense, but there we realized that the problem was genuine and recurring."
The meetings were based connections built over the years by Raanan's Cyberstarts fund. "We surrounded ourselves with a very significant network of customers, who actually took it upon themselves to help our entrepreneurs at a stage where there wasn't yet a product, when they were unable to do anything, but simply to help us solve the most pressing and biggest problems. Technology is great, it's important, but it's not enough. First of all, you have to know the customer. You have to ask enough really big customers what their big problems are, and build a technological solution around that, and not the other way around."
In the next stage, Axis presented the companies with a product that allowed remote employees to connect to enterprise applications at work in the most secure and stable way. "When we approached the companies, they had a solution for accessing their internal network - a VPN - and they had another product that allows for a secure connection," Knafo explains. "There were other products for protecting cloud services, and everything was pretty much the same with only minor changes. We combined it into one product and it actually created a huge cloud infrastructure through which everything could be accessed - in my opinion, in retrospect it was a courageous move."
At this point Gili Raanan intervenes and adds, "I'm not sure that the right word is 'courageous', I think rather stupidity or naivety - because this is the domain of giants like Cisco or Netskope."
The surprising offer and negotiations that failed
Already in the first months after the company began operating, Knafo recounts, various acquisition offers came their way, all of which they refused. "Little by little, more financially significant offers began to arrive," he said. "Even over the last year, at a time when the market and the value of companies has been decreasing, we had a very significant offer that we refused.
"Over the past few months, we held talks with HPE Aruba, and then they disappeared at a very advanced stage - not for two days, but for a month and a half," Knafo continues. "We read in the press that they were even in the process of negotiating a very large acquisition of another company. We looked each other and said that we would just move on. A few months later, I was at one of the World Cup games in Qatar, and suddenly I got a call from HPE Aruba. Just as the game went into extra time, I left watching the match to complete the call and realized that they wanted to continue the process that had previously been halted."
After several weeks of negotiations, in which Knafo and Raanan declined HPE Aruba's first offer they finally agreed an amount, which is estimated at between $400-500 million, although according to HPE's spokesperson, "The amount specified is inaccurate."
"Destructive processes that endanger the future"
To conclude the interview, Knafo and Raanan also spoke about the most burning issues on Israel's public agenda - the government's planned judicial reform. Knafo stresses, "First of all we are staying in Israel. This has not been the most festive week to announce an exit in the State of Israel. It's very worrying to see people taking money (out of the country) or leaving their money in the US. What helped us a lot is this ecosystem that is here and it's getting smaller and smaller, which is disturbing.
Raanana expresses himself more aggressively. "I think that the processes that we see here, of the revolution, are destructive processes that endanger all the foundations we rely on. I think that the extremism in public dialogue, the dramatic changes that the coalition is promoting are endangering our future."
The two also clarified that the talks with HPE Aruba began long before the discussions about the changes in the judicial system began, so the deal was not affected by them. "One of my concerns is that there will be some cynical use of this deal to say that everything is normal - everything is not normal," Raanan insists. "What you see here in the industry is the result of work going back many years, and a process that started before the attempted revolution. The implementation of the reform without consent, is simply a destructive process.
"If there is a country here that is not liberal, and if the reform passes without changes and without negotiations, there will indeed be an illiberal country here, there will be real difficulty in raising funds for Israel, difficulty in building big businesses here. It will hurt us all," Raanan concludes.
Published by Globes, Israel business news - en.globes.co.il - on March 6, 2023.
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