Less than a day after the company was sold, it was business as usual at cybersecurity startup Armis, even though many of its employees stand to emerge from the deal millionaires. A catering company arrived to serve light meals at Armis’ Tel Aviv offices, but, through the glass-partitioned work spaces, it was clear that most workers had their eyes on their screens.
“There’s going to be a big party, but we have to keep running,” said Nadir Izrael, one of the company’s two founders and its chief technology officer. As Yevgeny Dibrov, the other founder and CEO put it, “On ordinary days, we’re busy with customers – today, it’s journalists.”
Throughout the interview, each of the two executives completed the sentences of the other.
On Monday night, Insight Partners, a U.S. private equity and venture capital fund, said it was buying Armis for $1.1 billion, marking the largest exit in the history of Israeli cybersecurity.
The deal won’t make a lot of money for the investors and the founders. “The sale will create 30 to 40 millionaires, in dollars,” said Gili Raanan, Armis’ chairman and a general partner in Sequoia Capital, one of the venture funds that invested in the startup.
As Dibrov put it, “One of the things we looked at before we made the deal was the employees’ Excel and how it would look from their perspective, because they work day and night for us to succeed. Every employee will benefit, even an employee who’s been with us for two weeks.”
Armis employs 250 people in offices in the United States and Israel, and the head count is expected to climb under its new ownership. The company has tens of customers from among the world’s biggest companies.
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Formed less than four years ago, Armis designs and makes enterprise security products that protect internet-of-things devices – like medical infusion pumps or those used in production lines at car manufacturers – from attacks by identifying suspicious or malicious devices and quarantining them.
Internet-of-things devices face a security problem in that conventional antivirus defenses can’t be installed on them, making them vulnerable to hackers trying to break into an enterprise network.
The Armis exit is unusual in that the buyer is not a multinational tech company but a private equity fund. It has bought out all its fellow shareholders at a huge valuation in the expectation of staging its own lucrative exit later.
“Last April we completed a $65 million fundraising round, led by Sequoia. Insight came in as a small investors with $5 million. What proceeded it was that one day they appeared in our offices in Palo Alto after we failed to answer any of their emails,” Dibrov said.
“They flew from New York to the West Coast and said, ‘We’re here right outside – you won’t talk to us?’ We hadn’t heard of them before, but we felt a lot of similarities in the fund’s aggressive approach, wanting to win, so we agreed to let them invest in us.” Since then, Dibrov said, Insight has brought in a lot of added value in terms of customers.
In November, they had dinner with Insight’s founder, Jeff Horing.
“We spoke with him about another potential round of $100 million and he said, ‘Listen, you’re going to be building something special, a company north of $10 billion. This is an opportunity and we want to have a lot more of the company and be the controlling shareholder,’” Dibrov said.
Raanan added that unlike the usual private equity model of taking a profitable company and cutting costs dramatically to increase earnings, Insight is buying a loss-making startup with the aim of investing a lot and turning it into a big company.
As to what inspired Insight to believe Armis could achieve the goal, Izrael said: “When you talk about IoT, many people think about smart lighting; there are companies that do that. There are companies that deal with factories. There are companies with specific solutions for hospitals or railways – very specific solutions. We look at all of them, at devices on which it’s impossible to install antivirus, and that’s most of the devices in the world.”
Armis’ platform consists of a cloud-based product that discovers all devices in a large organization’s environment – managed, unmanaged or internet of things – on or off the network or in the airspace. That could be anything like smartphones, security cameras or printers.
Another part of the platform is inspired by Izrael’s previous job at Google, where the search engine is made more efficient by using previous searches to predict future ones.
“At Armis we do the same thing – crowdsourcing devices. We built each behavioral profile for each device – what it should do, what it did 30 and 60 days back, and when it breaks out of the profile and creates an anomaly,” Izrael said. “In that case, we can block it. In total, we have 10 million profiles in the catalog that cover 250 million active devices worldwide.”