Armis seeks an IPO, not an exit

Yevgeny Dibrov and Nadir Izrael Photo: PR

Armis, which raised $65 million last week, protects devices on which antivirus cannot be installed, and which are connected to networks in institutions like hospitals.

"In one hospital, we saw a case in which a drug pump hooked up to a patient was infected with a computer virus and could not be disconnected. A nurse had to sit next to the device all night and make sure that the pump did not mistakenly crash or change the dosage. Hospitals have to deal with such things all the time. This is exactly the kind of thing that Armis was created to solve, or rather to prevent from happening in the first place," says cybersecurity company Armis cofounder and CTO Nadir Izrael.

Armis protects electronic devices, peripheral equipment, and fairly simple gadgets. These are connected to institutions' computer networks on the one hand, but on the other hand, it is difficult or impossible to install antivirus on them. This category of products, referred to as the Internet of Things (IoT), will number 25 billion devices by 2021, according to research company Gartner.

Only four years after the company was founded, Armis's solution is already installed at hundreds of companies, including Fortune 100 and Fortune 500 companies, in 160 different countries. Armis's cloud-based software does not have to be installed on local servers. It makes it possible to detect and analyze all of the IoT devices connected to the network, from conventional devices like laptops and smartphones to new unmanaged devices, such as smart televisions, network cameras, printers, air-conditioning and air control systems, industrial robots, medical devices, etc.

Armis's revenue grew eight-fold between 2017 to 2018, and currently amounts to tens of millions of dollars. The company founders say that its product, which was initially sold for $100,000 for a year, is now being sold under long-term contracts for several million dollars. Armis last Thursday announced a $65 million financing round, after raising $47 million in previous rounds, making a total of $112 million raised. Armis did not disclose the company value for the round, but cofounder and CEO Yevgeny Dibrov says that the company value tripled in the year since the preceding round.

Dibrov and Izrael, together with director Gili Raanan from Sequoia Capital (now in the CyberStarts venture capital fund it founded a year ago), told "Globes" about how the company developed, the principles on which it was built, and its future plans. Dibrov worked at cloud security company Adallom until 2015, when it was sold to Microsoft for $320 million. Dibrov chose not to join Assaf Rappaport at Microsoft; instead, Dibrov and Izrael utilized their valuable connections to strike off on an independent path.

The Adallom exit was a critical link in a story that began in the IDF, where Dibrov and Izrael met. Dibrov is a veteran of the IDF Intelligence Corps technological unit, while Izrael served in Unit 8200. They both also studied at Technion - Israel Institute of Technology. They worked at other companies for five years, acquiring the know-how and experience they used to create Armis. Dibrov was the first employee to join Adallom, and worked on cloud computing systems. Izrael led the technical team of the Google Suggest automatic system. Another founder, Tomer Schwartz, left Armis in 2017.

"After Adallom was sold, I could have joined the founders and worked at Microsoft, but I didn't hesitate for even a second," Dibrov tells "Globes." I was sure that I wanted to start my own company, although this decision meant giving up as much money as I got from the exit."

"We decided to gamble on this team. We did rapid tests with several potential customers in the US in order to see how painful this problem was. We saw there was indeed a problem," says Raanan, who knew Dibrov from the investment in Adallom. " We realized that the number of devices hooked up to a network was growing exponentially. I called several chief information security officers - one from SAP and two from large Wall Street banks - and asked, 'What are you doing with IoT?' They answered, 'We have no idea, but it's a big problem that we don't know how to cope with. It doesn't look like we'll buy anything in the next six months, but we'll probably buy something in the next two years.' That gave me the feeling that where the timing was concerned, we're talking about a big problem that is difficult to solve, because none of them told me, 'We bought this' or 'We've thought about this.'"

"Globes": What did you do then?

Raanan: "We assembled more or less the same team that invested in Adallom, which included Zohar Zisapel, Mickey Boodaei, and Rakesh Loonkar, and then we went with Dibrov and Izrael to the US. They spent two and a half months there, during which we met potential customers. We told them, 'We didn't come to sell you anything, because we haven't anything to sell to you, but tell us how much the need for IoT security is bothering you.' We started hearing all sorts of things that were very amorphous at first. Information security managers started talking with us about gadgets such as Apple Watch, which was launched at the time.

"The thing was that this wasn't serious enough. It sounded like calls about gadgets. After a few calls like this, we began to realize that we had to talk about organizational information. So we started talking with them about the vulnerability of a printer connected to the network via Bluetooth, and which prints their company's budget book. Only when we stopped talking about gadgets and started talking about organizational information on the various devices did we see blood in the room, and blood in cyber security is something familiar.

"Organizations have a lot of problems and challenges. If you ask an average information security manager for a list of problems bothering him or her, you'll get a list of 30 things, not all of which are being addressed. They deal with only 3-4 things at a time from the entire list. We have to find the 26th problem on the list that's going to be number three."

Can you describe how the experience at Adallom and Google affected Armis?

Dibrov: "Adallom was the best school for selling to corporations. Another thing that helped us from the beginning was access that we had to important customers whom we could talk to and understand what their needs were. Afterwards, we learned the right way to assemble a marketing team in the US that would be geared to moving quickly, talking with the right people in organizations, and replicating the success from one sector to another."

Izrael: "If there's one thing I learned during my time at Google, it's that with enough data and a very broad approach to the world, you can solve huge problems without getting into a situation in which you have to solve one problem at a time. It's analogous to Google, which works the same in different, countries, cultures, and languages, and works with the same set of statistical tools and the same models."

Dibrov: "It's connected to the problem of competition. There are many companies in IoT cyber security, but each of them specializes in a specific market segment., such as production infrastructure security or medical equipment for hospitals. In each of these segments, there is already a significant number of companies, but for us, it's only a segment."

How can you develop a product that will fulfill the needs of such different industries?

Izrael: "It starts with access to companies with many devices. Even before we got to where hundreds of companies were using Armis as partners and customers, we were in a situation in which we were in several large organizations - several of Adallom's original customers - and we worked with them on developing a solution. All of these companies have many diverse devices, which enabled us to learn about the real environments of devices. Actually, every time we expanded to another sector, it involved adding just another 2-3 companies from the vertical in order to learn from there. Learning this way is very fast."

18 months ago, you set targets: a company value of $1 billion in 3-4 years, holding an IPO, reaching hundreds of customers, and 120 employees. Where are you now?

Dibrov: "The number of employees is already 125, and the purpose of the financing round is to hire 120 more employees in sales and development in Israel and the US. The most important step in the past year was going from $100,000 deals to deals of several million dollars. The current financing round is designed to help maintain this pace, and to expand to London, Singapore, and Australia. The number of customers hasn't yet passed the 100 mark."

Many CEOs today say that they are foregoing an exit and are aiming at developing large companies. Why should your future be like Wix or Forescout Technologies, rather than like Adallom, which was sold to Micosoft?

Dibrov: "In three years, we achieved large revenue and got large and sophisticated customers who spend a lot of money. We've created here a very large basis of knowledge that competitors will have a hard time catching up with."

Izrael: In the end, the decision depends on the market. When the market is big and there are already companies playing in it and capable of holding IPOs, it shows that the market is attractive. Most security markets are estimated as much less than $27 billion, the current sales potential of the IoT security market. If we take Adallom, which dealt with cloud security, keep in mind that in the end, not all the companies in the world switch to the cloud. It's not a solution that every company in the world needs, in contrast to our solution. Such a big market encourages growth and an IPO, rather than other alternatives."

Dibrov talked before about the challenges he faced as someone who immigrated with his parents from Ukraine in 1992 and grew up in Rehovot. Most CEOs were born in Israel and grew up in the main cities in central Israel. Do you think that the clique in Israel is too closed? It stands out especially given the meteoric rise of engineers of Asian origin to the leading positions in Silicon Valley.

Dibrov: "In the end, I like the Israeli environment; like the army, I see it as something in which everyone can succeed. If you're good, if you work hard, if you have a lot of motivation to build and win, you'll succeed. Nothing stops you. Nadir also isn't from Herzliya; he's from Kiryat Ata, and we both got to very desirable places in the army in the high-tech units.

"It used to be like you say, but today, you see many more immigrations from the former Soviet Union as CEOs and company founders. I think that today is the stage at which thinks are changing. There were many engineers at the team leader level who moved up. I was raised on values of aiming s high as possible. I always wanted to be number one, and I did everything possible to make it happen. The army, Israeli higher education, and the general Israeli environment support people with ambition."

Izraeli: "The comparison with the US is interesting, because there is internal entry of innumerable people wanting to enter. When you're talking about people from Asia, it's the top 1% of the population in India that immigrated to the US. It's true that the system in Israel isn't perfect, but the fact is that the army is a great means of social mobility. A kid who grew up in Kiryat Ata can work in Israeli high tech, work at Google, and developing an entire career horizon that doesn't exist elsewhere in the world."

Armis was represented by Adv. Itay Frishman and Adv. Avinoam Fachler from the Meitar Liquornik Geva Leshem Tal law firm. 

Published by Globes, Israel business news - en.globes.co.il - on April 14, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Yevgeny Dibrov and Nadir Izrael Photo: PR
Yevgeny Dibrov and Nadir Izrael Photo: PR
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