Just seven months after raising $77 million, cybersecurity company Cato Networks has raised $130 million, this time at a valuation of $1 billion (before money). Cato Networks was founded five years ago by its president and COO Gur Shatz and its CEO Shlomo Kramer, one of the founders of Check Point Software Technologies Ltd. (Nasdaq: CHKP) and the founder of security company Imperva, who participated in the current fund raising round. The company refused to disclose by how much its valuation had risen in the interval between the two rounds.
The current round was led by Lightspeed Venture Partners, which also led the company's previous two rounds. Other participants are a new investor, Coatue, and existing investors, Greylock, Aspect Ventures /Acrew Capital, Singtel Innov8, and Shlomo Kramer, as mentioned.
Cato Networks would not disclose its revenue, but did say that growth this year was 100%. Cato employs 270 people, which compares with 200 at the time of the fund-raising round in April this year, 170 of them in Israel. It expects its workforce to grow to 385 by the end of 2021.
Cato is engaged in developing an enterprise network on the cloud, arising out of a holistic vision that sees the enterprise network as the total of the components connected to the enterprise - from employees working from home or in the office, the various devices they use, and public cloud networks. Cato describes itself as an SASE company, a name given by research company Gartner Group to this new concept of cybersecurity: secure access service edge.
If in the past Cato had to connect the various offices and branches of an enterprise, now it has to connect all the employees working from home. Kramer told "Globes" that the company did not have to introduce changes into its product because of the coronavirus pandemic.
In fact, Cato replaces the enterprise network supplied by telecommunications companies, but because it builds the network from scratch, it can also secure it better, making it both a telecommunications and a cybersecurity company. The way Cato does this is via 69 data centers it has set up around the world.
"We connect the user to the point nearest to him, and from there a secured private network is formed. The challenge is to be the closest to everywhere. The world of server farms has undergone major change in the past few years, so it does not come out to be costly, and we believe that the benefits of scale will enable us to do it cheaply," Shatz told "Globes". "One can think of AWS (Amazon's cloud services arm), for example, as a shopping mall, and we are the network of railways that helps you reach the mall.
"The coronavirus has been a big driver for us, both in the quantity of deals and their size" Shatz added. "In fact, the coronavirus demonstrated that companies need to think about how spread out they are, and we are seeing that things we talked about in the past few years are happening in reality."
"The fund raising will give us breathing room"
The company says that the current fund-raising round was required in order to expand its development, sales and marketing activity, and to consolidate its service and go-to-market capabilities. Of the $330 million that it has raised over the years, the company now has $240 million cash.
"The fund-raising round will allow us sufficient financial breathing room for the foreseeable future, and will enable us to consider accelerating our road map for product development and launch," Kramer said.
"We have a regular cycle of presenting the company's vision and performance to investors, irrespective of any specific fund raising process, in which, at a certain stage, mutual interest arises in investment," Kramer added in response to a question from "Globes" whether the current round was at the company's initiative or a response to an approach from investors. He further explained that the reason for raising capital within such a short time after the previous round, in April, was that the company "is investing huge resources in conquering the SASE market in the coming years, and for that it has to ensure that it will have sufficient resources and flexibility to carry out the necessary investment."
Kramer justified the valuation at which Cato Networks raised capital - $1 billion - by saying, "Our investors appreciate our business momentum, our growth and the rate at which we are recruiting new customers. They share our assessment of the opportunities in this field and of the unique way we have developed in order to exploit them. Our customers save tons of money by using an SASE platform and not a pile of individual solutions," he said.
Kramer refers here to one of the built-in flaws of the cybersecurity industry, which is that many companies specialize in securing different territories within the enterprise and different kinds of activity. As a result, information security managers use many different security products, each of them costly, with problems of coordination between the various products liable to arise.
Cato Networks creates a new infrastructure for enterprises, and if it succeeds, it will become a sort of consolidator. Asked whether the company will be able to remain independent over time, Shatz said, "That's our intention. We want to build a big, independent company in infrastructures. There is a vast number of capabilities that can be built on that."
Cato Networks sees cybersecurity switching to SASE, and it expects to encounter competition from other companies. "Palo Alto, for example, buys into the vision, and is starting to move, but it will take it a few more years," says Shatz.
"We really believe that there is a good opportunity here to build a big company, which means that even in three years' time we'll still be nearer the beginning of the road than the end, because the market is so huge, and this is a significant change for the world. For several quarters now, our performance has been better than expected, and as a company we are doubling in size each year, but the question is not how many people we have hired, but how much ambition we have looking forward," he says.
Published by Globes, Israel business news - en.globes.co.il - on November 18, 2020
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