"There was a lot of interest in us, because of our insane growth, and we received many queries from strategic buyers. We said in the past, however, that we want to build a large company, and didn't want to be integrated into one company; we wanted to preserve our culture," said Yevgeny Dibrov, cofounder and CEO of cybersecurity company Armis, talking about the deal to sell control of the company to Insight Partners.
The deal, signed earlier this week, will be at a valuation of $1.1 billion. Armis's founders and employees sold some of their shares, but Dibrov says that they will retain "a substantial holding." Another shareholder is Google's investment fund CapitalG, which invested $100 million in the deal.
Rumors of a possible deal surfaced a few weeks ago, when Armis began working on another financing round. "We had many offers from investors who wanted to participate in financing rounds, but Insight Partners founder and managing director Jeff Horing came to us with a very unique offer, which gives us the best of both worlds. On the one hand, we have an option of reaching a milestone that will be the biggest cybersecurity exit ever in Israel for a private company, and is also good for us and for the employees. On the other hand, there is an amazing opportunity to build the company with the support of a large fund, together with Google's fund, in order to continue advancing towards the goal we set - building a large company here that will hold an IPO in the future," Dibrov explains.
"This deal reflects an evolution in startups about the possibilities for exits," Armis cofounder and CTO Nadir Izrael tells "Globes." "Actually, all of the employees still have shares, and are getting more shares from the buyer, so that they will have a significant holding in advance of a future IPO. The employees are also benefiting from the exit, and it has changed their lives. They will also benefit in the future when the company grows into what we believe it can grow into. We've established a completely new threshold for employee compensation in this type of situation."
Armis, which deals with security for Internet of Things (IoT), was founded in 2015 by Yevgeny Dibrov, Nadir Izrael, and Tomer Schwartz (who is no longer with the company). Among the investors in Armis are Sequoia, Red Dot Capital Partners, and private investors Zohar Zisapel and Michael Boodaei. The company has raised a total of $115 million. According to its founders, its revenue amounts to tens of millions of dollars a year, and is likely to exceed $100 million in the coming year. "The board of directors always tells us that the targets set by Yevgeny Dibrov are too high, and he proves them wrong every time," Izrael says. Dibrov adds that the company's profit margins are 90% or more, because they sell a software as a service (SaaS) product, and because the company is currently investing in aggressive growth.
"We're not deviating from our original vision"
The current deal is extraordinary, and Armis will continue operating as an independent company, supported closely by Insight. Insight's goal is to enhance the company and sell its investment within a few years through an IPO or privately. "Horing's vision is to become 'Softbank done right' - to make very large investments in companies that are growing very rapidly, and in strategic sectors. If he thinks that the company can reach a $10 billion value, why should he hold 10%? He wants to hold 80-90%," Dibrov says.
The connection between Armis and Insight was created in April, when Armis completed a $65 million financing round, led by Sequoia. "They called us many times asking to participate in the round, and we told them no, because the round was already closed, so they simply showed up in front of our door in Palo Alto and said, 'We're here. Why not talk to us?', Dibrov remembers. "We feel like we've got the same DNA as the fund. We're very connected to investors and people we work with. Each of us, Nadir and I, finished last year with half a million air miles. For us, there's no chance that we'll miss deals, even if we have to be in a different place every day: Singapore, Chicago, the UK, and so on. It has also soaked into our enterprise a lot, and this is something we also saw in Insight."
"The fund gives us the ability to grow and be a stable company that doesn't have to hold a financing round every year. This means a lot to our customers, and each of them that heard about the deal called us, not only to congratulate us, but also to say, 'Thanks for remaining who you are, and you'll continue serving us in the coming years,'" Izrael says. On the decision to sell to Insight's venture capital fund, rather than to its private equity fund, Izrael says, " We weren't known to private equity people, because their DNA is focused on profits and streamlining the activity. This fund thinks like a venture capital fund, and they think about how they can enable to achieve revenue and high growth rates and conquer more markets."
"Globes": Aren't you worried about losing the company you built when there is such a dominant shareholder?
Izrael: "In recent weeks, we talked over many details about how the company will look in the future. After we had a good short discussion, I told them, 'If every discussion we have in the future is like this, I'm very optimistic about our success.' Jeff said, 'If there's anything we can't agree on in 10 minutes, then there's a big problem.'"
But one day, you might not agree.
Dibrov: "It could happen one day, but a lot of our success is related to the joint work of Nadir and me. When we feel good about our working relationship, these are people we want to work with, like Jeff Horing and Teddie Wardi from Insight and Gili Raanan (Armis chairman and the first investor in the company). These are people we want to make this journey with, and spend a lot of time with in building something big. There will be good times and bad times, but what's important is that we do this together."
Google also recently invested in the company, and has now become a more important shareholder. How does that contribute to you?
Dibrov: "It was a small investment that has now grown into a significant investment in the company. This is a very important partnership. They came to us the first time with the best market research that we'd seen, and they knew everything about our market. They gave a lot of examples of how they had helped companies they invested in, which later held IPOs. They can give us a lot of experience and connections, and we're working closely with Google, including specifically with its cloud platform."
What is behind your rapid growth in terms of the market, the customers, and the technology?
Dibrov: "It's a combination of timing and technology. This is what the trend is, and there's crazy growth in devices connected to the Internet in every region and every vertical, in the office, factories, hospitals, and smart cities. Given this growth, a huge gap has opened for enterprises, because when the number of devices reaches 90% of the network, it creates a problem for an enterprise. There are many individual solutions, but with Nadir's leadership, we have succeeded in create a technological solution that's a game changer."
Izrael: "There's a matter of terminology here. Internet of Things is a concept that means different things to different people. Its meaning is being interpreted differently. Some people think of it as equipment for factories, and some think of it, for example, as smart refrigerators, which doesn't really interest an enterprise. 100% of enterprises have Internet-connected devices that aren't smartphones or laptops. The customers we have now are really not early adopters; they're giant companies that have a real problem. Even if they think of us as people - a decade ago, most of our work was on computer, and today we do it on the telephone, a tablet, or other devices - and they have no anti-virus. There are people who have infinite quantities hooked up to the home network. In enterprises, it's much bigger, and it's growing at a speed that they don't know what to do about it."
The fact that you are remaining an independent company links you to the company in the coming years, in contrast to other exits. Is something that you think about?
Dibrov: Nothing in our lives is more exciting to us than Armis. We talked about a lot of flights and missing a lot of sleep - this is something that excites us, these victories, that we're building something special. We want many more such years. It's an exit, and in the end, there's something very significant - to us and the employees financially, but we're here to build something big."
Izrael: "If you look at the story of Armis for a minute, it's not different from our original vision. We wanted to build a big company capable of solving a painful problem. The DNA permeates the entire organization. People see the same thing that we see, that it's possible to build a giant company here. Israelis are sometimes cynical about this, but then we build a $1.1 billion-company in four years, and people become less cynical."
Published by Globes, Israel business news - en.globes.co.il - on January 8, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020