Last week, Israeli startup Transmit Security announced the biggest ever funding round for a cyber company. The veteran startup raised $543 million in Series A funding at a market valuation of $2.2 billion. One of the co-founders behind the startup, which wants to erase passwords and usernames from our lives, is Mickey Boodeai. He is a serial entrepreneur in the cyber field, with already two startup exits on his resume -- Imperva and Trusteer. In an exclusive interview with Geektime, Boodeai explains how the company survived for 7 years without VC funding; what’s behind the rise in market valuation and what made the founders open the doors to investors.
Transmit Security was founded by Boodeai and Rakesh Loonkar in 2014; only a year after their former baby -- Trusteer -- was acquired by IBM for hundreds of millions of dollars. However, this time, Boodeai strayed away from the standard journey of an Israeli startup, which includes funding, concept development, additional funding, real product development, even more funding, and finishing off with a celebrated exit. “We don’t really connect with companies bleeding capital,” Boodeai tells us. “We like seeing models that generate revenues. We attach revenues to the value which companies create for their customers.”
Instead of raising funds, Boodeai and Loonkar announced in 2017 that they would invest $40 million from their own pockets into Transmit. “We injected a few million that was returned to us. A kind of loan from the owner,” he explains. Since then, according to Boodeai, the company has become profitable. “We’re proud of this effect, it really challenged us.”
It sounds like bootstrapping worked out. So, why now raise a massive round and bring in outside investors?
Boodeai: “Look. We started out bootstrapped, as a challenge we envisioned to meet -- founded a strong and profitable company without any outside investment. Checked that off the list. Though, at this point, we’ve started witnessing the disadvantages of the model.”
From our conversation, the subject of recruiting and hiring came up -- a challenging process even for the most successful startups -- however, the story of a company fighting temptation sounded less than tempting for most candidates: “We are in a highly competitive human capital race. Today, when we recruit, we’re always compared to other companies that raised this and are valued at that. They often don’t understand that unlike a company which has raised $100 million at a $500 million valuation, the bootstrap story we tell them offers so much more opportunity.”
Not limited to just recruiting talent, Boodeai shares openly that the bootstrap choice has hurt media coverage around the company: “And here we are talking today [Geektime and Transmit]. Once you’re off the funding radar, you almost don’t exist. Until now, we hadn’t really received the coverage we would’ve liked, and it’s really important for recruiting new employees and onboarding new customers. Even when customers inquire about our VC backing, we almost have to apologize, telling them why we have no outside investors.”
“We felt that we lacked the experience for a company of this scale”
At the same time, Transmit Security reached an ARR of $100 million. “We felt that we lacked the experience for a company of this scale,” says Boodeai. “We had founded a few companies in the past, but this is the high-end of what we’ve accomplished until now… We witnessed corporations and major VCs take companies, our size, to the public market. They bring significant added value to help us along our journey.”
Boodeai notes that VC funds, in the past, couldn’t really offer a lot of value for a growing company: “It used to be strictly capital partners, and today, real partners that help move your company forward. It’s different.” Boodeai and Loonkar decided on bringing in outside investors, and not just anyone, but Insight Partners. The VC fund continues to strengthen its foothold in Israeli high-tech, after completing the acquisition of Armis, and investing in dozens of Israeli startups over recent years. Co-leading the round alongside Insight Partners is General Atlantic, an investor in Israeli startup Zoomin and in ByteDance, the owner of a “little known” app called TikTok.
Nevertheless, there’s a major difference between a standard Series A round to when Transmit Security announced its first investment. Boodeai explains that this gap stems from the position of the company, which is more comparable to a public company rather than a first time funding early-stage startup. “We have numerous customers around the world, and over 200 employees. The initial valuation tagged on the company is relatively high due to investors wanting to hold a larger stake.”
He says that investors didn’t measure Transmit based on its vision or potential, but rather based on actual performance: “The due diligence conducted on our company used advanced financial tools to analyze our pipeline in comparison to the public market. Eventually, the determined valuation enabled investors to pinpoint their desired stake in the company.”
In today’s ultra competitive market, I imagine it's hard to retain employees as a bootstrap company watching dozens of cyber startups raise hundreds of millions of dollars in funding. Boodeai explains that the company has had a loyal team from the start. However, he refuses to comment on the massive round’s secondary deal, only noting that “the goal has always been to take care of our people.”
What’s the next step? Another round or IPO?
Boodeai: “There’s no point in fundraising again, at the moment. We already pinpointed the reasons for funding in the first place, and there’s no need to replicate them. I don’t foresee another round. We brought on VC funds, which are expecting ROI. This puts us on a course towards an IPO. Our goal is to build a strong foundational company. We’ve invested 7 years; it isn’t our first venture, we want to take this one as far as possible, and even further. It’s a major market that only knows growth.”
You’ve hit a lot of milestones during your 7 year wait for this moment. Doesn’t it bother you to see much younger startups raise funds at insane valuations?
Boodeai: “The truth is I don’t know what to think. I believe this trend has a few advantages, but many disadvantages come along with it. A lot of smart companies will be able to leverage both, and many will fall… Do I think you could succeed without raising massive rounds? I believe so. Is it more difficult? Probably. I have nothing against these rounds. I just don't understand why the money keeps flowing in."