Two months after Israeli cybersecurity company Tufin Software Technologies Ltd. (NYSE: TUFN) held its IPO and trading in its shares began on the New York Stock Exchange (NYSE), we spoke with its founding duo: CEO and chairman Ruvi Kitov and CTO Reuven Harrison. This is the first major interview with Tufin's founders since the company was founded in 2005.
The day before trading in its shares began on the NYSE, Tufin published its first reports as a public company, in which it gave its first quarter results. Following the publication of the reports, Tufin's share was traded at $22, giving the company a $719 million market cap, 16% higher than the value at which it was first traded on the NYSE on April 11. As of yesterday, the average recommendation for the company's share was "Market outperform," with a $27.80 target price.
"Globes": Why have you almost never been interviewed before?
Kitov: "Both Reuven (Harrison) and I don't like talking too much. We prefer doing to talking. We don't like exposure so much, and certainly not personal exposure. Publicity is less important to us. The last time we gave a short interview to the media was eight years ago, when Tufin was named the fastest growing high-tech company in Israel in Deloitte's annual rating."
Tufin has already existed for 14 years. Tell about the company's beginning.
"Reuven and I met at Check Point. We both worked for several years in development jobs. Check Point was a pioneer in firewall, and we learned a lot there. It was an excellent school, and we met very good people there. After a few years there, each of us separately decided to leave, and then we decided to join forces in 2004.
"In the beginning, we had no ideas. We rented a 20-square meter room and started doing consultation work. After three or four months, we got the idea for the first product that we developed, SecureTrack, which is our bestselling product to this day. When we started talking with several customers about the product, we discovered that there was interest in it. In less than a year, with a small working team, we developed it. At the end of that year, we managed to sell the product to three customers, and from these sales, we began expanding. We continued growing slowly, until after four years, we raised our first round of venture capital investments. Up until then, we were a bootstrap startup - we raised no money from investors."
Tufin's first customers were Israelis, later joined by several European customers reached through Kitov and Harrison's connections. "We also gained US customers at a later stage. You could say that we began selling in the US 'by mistake,'" Harrison says. "We put up a website, and customers started ordering the product through it. We reached the market at the right time, when everyone was looking for our firewall solution, and we had a lot of luck. It's very hard to create technology and sell it in the same year without money to leading enterprise customers. Today, I think that no one is capable of doing this. In addition, there was a network of friends and customers we knew from Check Point, who helped us at the beginning. Keep in mind that we had no previous background in sales; we worked in development at Check Point."
14 patents registered in the US
Starting in early 2019, there was a slowdown in cybersecurity company offerings on Wall Street. The only cybersecurity company to go public so far this year is Tufin, after several companies in the sector held offerings last year, among them Zscaler, Carbon Black, and Tenable Holdings. Long before Tufin, there were several large Israeli company in the cyber sector on Wall Street, such as CyberArk, Imperva, and Check Point, from which the Tufin founders came.
Tufin calls itself a company for managing information security policy that specializes in automation of security policy changes on platforms integrated in cloud computing, while improving security and compatibility. Tufin's innovation lies in several technologies, such as an automated policy generator, which changes the security rules on the basis of network traffic, and automation methods for security policy. Tufin's technology is protected by 14 registered patents in the US.
What is the secret of the success of SecureTrack, the main product sold by Tufin?
Harrison: "What large organizations need, beyond information security tools, is management of organizational processes, and players like Check Point are less focused on this. Their focus is more on preventing cyber attacks. They did not deal with the business processes above this. For example, at Comverse, one of our first customers, they asked to see what the people managing the firewall were doing, so that the information would provide them with control over changes in security. This was a basic need that none of the information security providers understood at the time. In my opinion, most of them still don't understand it.
"This was the place where we entered the market. We first offered a very simple initial solution, which later became much more complex. Since then, of course, the SecureTrack product has been improved, and it now provides a solution not only for Check Point, but for 20 more different types of firewall, and for information security on the cloud."
Other than your main product, what information security solutions does Tufin provide?
Kitov: We connect two worlds. On the one hand, we're a cybersecurity and information security company, because the customer to whom we sell our products are information security personnel. On the other hand, we're also a company that manages information technology (IT) in large organizations. We deal with the borderline between information security and IT management."
Harrison: "Our first product, SecureTrack, gives organizations command and control over information security policy. In the next stage, we thought, 'Why not manage all of the changes in information security policy, not just see them,' and here is where our second product, SecureChange, comes in. With this product, you define a process of change, and this is something else that the firewall producers understand less. The process is complicated, involving a very large number of different positions in an organization. When the change process is completed, all of the changes have to be implemented in the network. Today, now that the product is already in a more advanced version, it is already able to make all of these changes completely automatically. Changes that once took organizations weeks and even an entire month to implement can now be done in just five minutes, and that has a value of millions of dollars."
In addition to these two products, Tufin has developed several more. "Our third product is called SecureApp," says Kitov. "This product acts as a bridge between software developers and information security managers in an organization. It enables information security managers to understand the needs of the app from a network perspective, and how to install changes without breaching the organization's information security policy. In addition, we have two more new products, Orca and Iris, currently in the beta stage, for which we haven't yet issued the final version. Both of them deal with information security on the cloud."
"It's important for us to treat every employee with respect"
Tufin now has over 2,000 customers in over 50 countries around the world. Among other things, it serves the finance, telecom, security, energy, infrastructure, and retail industries. In 2018, the company's revenue totaled $85 million, 7.31% more than in 2017. In its bottom line, Tufin posted a $3.4 million net loss last year, compared with an $8.2 million net loss in 2017.
Following Tufin's IPO in April Kitov and Harrison each hold 7% of the company's shares. Other prominent shareholders in Tufin are Catalyst Investments and Marker. Catalyst, which invested $3 million in Tufin's first financing round in 2007, holds 19.3% of Tufin's shares, assuming that the underwriters exercise their options. Marker, which invested in Tufin's second financing round in 2011, also holds a 19.3% stake in Tufin following the company's IPO. The Sberbank and Vintage funds have 4.8% and 7.7% stakes in Tufin, respectively.
Whey did you prefer NYSE to Nasdaq for an IPO?
Kitov: "Up until 10-20 years ago, it was very expensive to hold an IPO on NYSE, and it wasn't friendly to technology companies, so a lot of high-tech companies preferred to hold IPOs on Nasdaq. Today, as a result of regulation, there's a revolution in the field, and both stock exchanges have to offer the same services for the same prices. So the situation has changed in recent years, and today, you see more and more IPOs on NYSE by technology companies."
Tell us a little about Tufin's organizational structure
"Our main headquarters are in Tel Aviv, where most of the development, financial, and human resources departments' activity is managed. Israel is our biggest office, where half of our employees are located. Besides the office in Tel Aviv, we also have development teams in Karmiel and Romania. I personally moved to our office in Boston two years ago, because many of the largest customers are in the US, and the financial market is also located here. The VPs in sales, marketing, and business development are also in the US and our sales teams are spread all over the world. We have two large service centers: one in Israel and one in Ohio. In addition, we also have an office in the UK, which also engages in sales and service."
"It's also important to take note of our organizational culture," Kitov adds. "When we founded the company, it was important for us to make people proud to part of us, even as junior employees, not just as managers. It's very important to us to treat all of the employees at Tufin as being valuable."
Aren't you afraid that this organizational culture will be affected as your company grows and hires more employees in various places around the world?
"I think that this concern exists in any large organization. It's very important to us to preserve the company's organizational culture as it grows. The most important value for us is treating every person in the company with respect and concern."
How important is Israel to your company?
"Israel is very important to us, and our technological base is in Israel. I don't think that this will change in the near future, nor in the more remote future. Maybe someone would have thought about moving the company to a different country in order to cut costs, but our focus is on developing software, and trying to do this at lower cost in a developing country isn't our vision."
We have seen many mergers and acquisitions of companies in the high-tech industry in recent years. Have you had thoughts about merging with other companies?
"We haven't really deal with this up until now; we focused mainly on continuing our growth, developing the products, and supporting our customers. We have thought about this occasionally, but it wasn't our focus."
Published by Globes, Israel business news - en.globes.co.il - on June 16, 2019
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