Israeli Cybersecurity Startup Makes One Billion Dollar Exit

Armis sold to New York-based global private equity and venture capital firm Insight Partners

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Armis offices in Tel Aviv.
Armis offices in Tel Aviv.Credit: Moti Milrod

The Israeli startup Armis, whose technology is used to protect the Internet of Things, sold to Insight Partners fund for $1.1 billion, the biggest exit deal ever for the country’s cybersecurity industry.

It's a remarkable valuation for a company that was founded only in 2015 and has raised just $112 million from investors to date, $65 million of that in a round conducted last April. Insight, a New York-based global private equity and venture capital firm, was an investor in that round.

Armis, which is headquartered in Palo Alto, California, and has a research and development center in Tel Aviv, declined to comment on the report.

The $1 billion-plus price tag breaks the previous record for the sale of an Israeli cybersecurity startup that was set in 2013 with the $800 million sale of Trusteer to IBM and the $560 million sale of Twistlock to Palo Alto Networks in 2019.

The acquisition is not only large but unusual because funds like Insight acquire companies with significant revenues and profits with the aim of improving their business performance and reselling them later. The finance deals with a combination of cash and debt they repay from profits earned by the company they have acquired.

Armis doesn’t fit the model. While it is growing quickly, according to market sources, it isn’t profitable.

Among the investors that backed Armis and can expect to profit enormously from the exit are the funds Red Dot, Bain Capital, Sequoia Capital and Assaf Rappaport, the general manager for research and development at Microsoft Israel.

Armis’ enterprise security platform protects IoT 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.

As IoT devices grow they face a critical security problem in that conventional anti-virus defenses can’t be installed on them, making them a vulnerable entry point for hackers trying to break into an enterprise network.

“Standard network security products ask what there is on the network. We ask what each device is doing,” Izrael told TheMarker in an interview in the past.

“We have an updated database, probably the world’s largest, of about seven million devices and devices. If a camera suddenly starts scanning the network around it or communicating with other devices, we detect unusual behavior and can lock the device so it doesn’t harm the rest of the network,” he explained.

Armis was founded by Yevgeny Dibrov, its CEO, and Nadir Izrael, its chief technology officer. A third founder, Tomer Schwartz, left the company in 2017. Dibrov previously worked as head of global business development and was the first employee hired at Adallom, which was sold to Microsoft for $320 million four years ago. Izrael led the Google Autocomplete development team in Haifa. Both men served in Israel Defense Forces technology units.

In related news, Israel’s gaming industry was also poised for a major exit this week. TheMarker has learned that Ilyon Games, which develops and markets casino games for smartphones, is being acquired by the online games company Miniclip for an estimated $100 million.

Ilyon described the deal as a “strategic partnership that also includes and acquisition” and added that the company would remain in Israel and operate independently of its parent. Miniclip is controlled by the Chinese internet giant Tencent.

Formed in 2014, Ilyon has a portfolio of social and casual games, the latter simple games designed to be played on the confined space of a smartphone screen, and can also be used on Facebook. Its flagship game is Bubble Shooter, which boasts 50 million downloads in Google and Apple apps stores.

The company is based in Rosh Ha’ayin and employs more than 100 people. Until now, it has kept a low profile and disclosed few details about itself. It is entirely financed (bootstrapped) by its founders and from profits plowed back into the business.

To date, its entire portfolio of games has had some 500 million downloads and is especially popular in India, Brazil and Africa. That is because its games are designed for the simplest models of smartphone and don’t require a lot of battery power or data. Its business model, which is based on markets where users don’t typically pay for games, offers games for free in exchange for the user watching ads. It uses a freemium model, enabling users to upgrade at a cost.

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