September 24, 2021 – On today’s podcast we welcome special guest, IronNet’s co-CEO Bill Welch. IronNet is an innovative leader transforming cybersecurity through Collective Defense.
On the show, Bill discusses:
- How cyber threats have evolved over the past 20 years
- What CTOs and executives should be concerned about regarding their company’s network security
- What he learned from their recent going-public process
- Key drivers of IronNet’s forecast 78% revenue CAGR
- And more
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: Excited to be live with Bill from IronNet, fresh off the coattails of going public. So, IronNet is a newly public company and just came out with their second quarter financial results. Stock has pretty much been on a rocket ship ever since completing the going public transaction, but here we’re more so aiming to talk about the fundamentals, the business, the underlying competitive dynamics, product, things of that nature. But prior to getting into that. Bill, you’re a real veteran of the technology industry, more than twenty-five years of experience. Leading global technology companies, such as HP, Symantec, now IronNet Cybersecurity. Can you walk us through your career trajectory and how you came to be Co-CEO at IronNet?
Bill Welch: Yeah, absolutely. So, Julian and Michael, thanks for having me on today. I’m really excited to have the privilege to introduce your listeners, to IronNet. And we are on a mission. We’re a very mission-oriented company, we’re on a mission to transform Cybersecurity, through collective defense. And, you know, just to give a kind of an overview of the why behind IronNet is, I’m sure all of your listeners and all of you know that, cyber is an element of national power right now. It is being used by individuals to, you know, attack the political system, attack our infrastructure, attack our wellbeing, attack our intellectual property. And, you know, unfortunately, all these companies that are being attacked are victims. And that’s one thing I want to make very clear is that there’s nothing these companies are doing wrong. All they’re trying to do is either supply gas in the case of the Colonial Pipeline, or they’re trying to, you know, supply need, to all of us so that we can, you know, take care of our families.
And in turn, they have to worry about somebody coming after their network. And you think about this, Julian and Michael is if an adversary like China or Russia was standing at the gates of some of these companies, what would happen? We know that the military or law enforcement would come to their aid in a physical world, but in the Cyber world, they’re being attacked just as violently yet, nobody’s helping them. So, you know, one of the things that we decided as a company, and this was founded by General Alexander, the former director of the NSA and cyber command was, how do I see the network? How do I make sure that I can help these entities? How can I bring these adversaries to get them out of our world and let our companies and sectors, nations and states do what they do?
So, that’s why I’m excited to be part of IronNet. But back to your question, you know, I will tell you that I’ve had an incredible privilege of leading organizations across Oracle, Symantec, HP. I was proud to take Zscaler from, you know, a Pre-IPO to a very successful public, was going to do that with Duo. But in turn, Cisco bought us for two and a half billion dollars on those. And then I got a call from General Alexander and General Alexander said, look, I need somebody to help me scale this company to help it bring this collective defense to companies, sectors, nations, and states. And, he said, I need your help. And, when you have a four-star general, when you have somebody that’s a former Director of the NSA, you don’t say no to that.
Julian Klymochko: No doubt. So, beyond the charismatic leader of the organization and your background in cybersecurity, was there anything specifically that attracted you to the IronNet opportunity?
Bill Welch: I think it’s about; you know, I’ve been a student of cybersecurity for many, many years and, you know, and unfortunately in all the years I’ve been in, it’s getting worse.
Julian Klymochko: Right?
Bill Welch: And what challenges me is even with the best people, the best processes, the best technology, we still are victims, you know, to the challenges of the adversary. So, when I looked IronNet, I said, wait a second, this is a different way of looking at cybersecurity. So instead of us defending in isolation, we can now defend in teams. We can now also bring not only great technology with the behavioral analytics platform we have, but also the concept of collective defense, because what’s better? Ninety regional banks with ten people at each bank working singularly on a problem, or do you bring all ninety together, all nine hundred people working together and that’s what we’re doing.
But the most important thing that we’re doing is, once we’re able to give that information and get that anonymized information of an attack, we can now share that in a public private partnership with the appropriate Government entities to go and do what they should do, which is defend, which is to offensively take care of the adversary, because think about it. When North Korea attacks Sony, Sony couldn’t do anything. All they could do is put their shields up and say, hey, I’m going to keep taking the hits. Instead, what we need to do is, when North Korea attacks Sony, we give that information to the proper parties and those parties go and take care of the adversary that North Korea or China or Russia, instead of them picking on Sony, let them pick on the U.S. Government.
Julian Klymochko: That makes sense. And from a lot of what I’m hearing, it sounds like one of the main benefits of cybersecurity is the social benefits, you know, defense from attacks in hostile and authoritarian Governments. Is that something that investors recognize, like from an ESG perspective, there’s a lot of focus on the E or environmental side, but specifically socially, that seems to be a big attraction for IronNet and cybersecurity. Do you get any of that type of feedback?
Bill Welch: Absolutely, and if you think about it. Everything that we’re involved with right now in our domes, as I said, you know, we have an iron defense, which is our behavioral analytics platform. And then our iron dome is these collective defense domes that we’re setting up and you take the energy dome, for example. And if you want to talk about social and impact to the world is, what would happen if eight of the ten largest energy companies in United States were no longer online? You know, we saw what happened with the Colonial Pipeline here in the United States. You know, I live in North Carolina and I saw people lining up, trying to get gas. And these things are what cyber is impacting. And you think about how cyber will impact our healthcare. You know, the last thing I want to see is somebody messing with a vaccine or messing with a critical infrastructure of a medical equipment manufacturer. So, I do believe that we are playing a significant role in the ESG portfolio
Julian Klymochko: That makes sense and cyber threats, cybersecurity, it’s such a dynamic area. And it seems to be moving very, very quickly. How do you view the evolution of this over the past twenty years? How have cyber threats changed?
Bill Welch: Well, I think the whole industry and the market that we’re serving has changed dramatically. If you think about it, we, as a society have gone through the tech shifts around whether it was mainframe base, to client server, to now cloud. And then you’re going to see the advent of 5g, that is going to open up a whole proliferation. And then on top of it, all the different mobile devices, I mean, you think about Julianne, Michael, how many different mobile devices do you carry around and how do we secure them? And now the concept of the commercial world and your public persona are now merged. You know, there’s no longer, oh, you use this asset for work and you use this asset for home. And in many cases, COVID has amplified this because now, you know, in the case of IronNet, for example, is we now have three hundred offices because all of our employees that are home, I have to secure them. So, I think it’s the same thing that’s happening across the entire world is that the work from home, the digital workforce is absolutely changing the way cyber security needs to be delivered.
Michael Kesslering: So, can you talk a little bit about how exactly you work with your customers to protect them and some of that further value add that you have for them?
Bill Welch: Yeah, I’ll give you a couple of examples Michael. So, you know, let’s take the energy dome, for example. One of the things that we’re so proud of is, there was recently the solarium report that talked about how, you know, these companies should work together in this public private partnership. You’re most recently saw, there were a bunch of executive orders out of the U.S. Government around cyber and how we should be working collectively together and working to, you know, drive those public private partnership. But you take, for example, one of our energy customers, you know, they’re working together in this dome to where now their security operation centers say, at a customer A and a customer B are sharing information anonymously, right? They’re making sure that they’re getting the benefit of the intellectual knowledge of each one of these security operations centers so that they can share anonymously what is going on in each of their networks. And they, instead of me working on one thing and you working on another Julian and you working in another Michael, you saw something Michael, that helps me and Julian. So that is where the cloud scale and the network speed of our solution is really benefiting our customers from a value add, because one, they don’t have to work on things as aggressively on their own. They can work collectively on.
Julian Klymochko: I wanted to touch on some of the platforms offered by IronNet, specifically. Collective Defense and another one called IronDome to a non-expert. How would you say these differentiate themselves in the marketplace, say investors looking at your product suite? What would you say sets you apart?
Bill Welch: Yeah, well, first of all, Collective Defense is this the moniker that we call our IronDomes, but that’s what we’re doing is, we’re setting up these domes in each one of these different verticals. You know, what I would tell you is that we are playing in the network detection and response space. So, the NVR space, so we’re competing, head-to-head with competition out there, just like in my former company was at Zscaler. We competed in the secure web gateway and we did very, very well there, but we set the vision for cloud security. We wanted everybody to understand, like that’s directionally the north star of where we’re going. It’s the same thing with IronNet. We will compete in the network detection and response space, doing very, very well there. And it’s a very large total adjustable market, but we’re setting the vision for collective defense and no other company out there is doing collective defense, at the level that we are.
Julian Klymochko: That makes sense. So, from a CTO or executive perspective, they read all these cyber-attacks happening, whether it’s Colonial Pipeline and they’re probably highly concerned, but don’t know what they don’t know. So, what should be worrying executives, running companies, and where should the concerns lie regarding network security?
Bill Welch: And I think you hit it perfectly Julian about it’s what they don’t know. And that is why IronNet was founded to detect the unknown unknowns is, you know, right now most of your security technology. Getting a little technical is, based on the signature-based mentality, which is, we already know what’s going on. We already know what signatures are developed and have already been written. What we’re doing is, we’re saying no. Let’s look at all the information that we’re ingesting, all the data that we’re taking, not only from the network or from our ecosystem partners, and let’s apply our analytics against that. Let’s apply our behavioral analytics against it to say, this is what we’re seeing. And this is the anomalies that you might not be aware of and giving them the hints and clues that this is the next step that’s going to happen so that we are almost having a predictive model to say, based on the things that we’re seeing in the network, based on what we’re seeing the activity and the anomalies in there, this is the next thing that’s going to happen. It’s almost like a, you know, like a Precog, you know, where you see it before somebody else does.
Michael Kesslering: So, moving a little bit to the financial side, something that’s mentioned a lot in your investor materials is your double flywheel. Can you talk a little bit about how that double fly wheel works and how it really drives your unit economics?
Bill Welch: Yeah, good question Michael. I’ll tell you, a couple of things that I’ve noticed in the industry is, one of the things is the network effect I’ve seen at the company. The network effect at the company really applies technically in our go to market. On the technical side, as we add more. So, our go to market as we anchor ourselves on a cornerstone customer. So, we’ll go after, for example, as I mentioned, an energy customer, or we’ll go after one of the top producers in the space market, which you saw recently in announcement where we’re doing a space film. So, what will happen is, we’ll go get that anchor tenant. And then around that anchor tenant, we’ll get other cornerstone customers and then community customers. So, for example, one energy customer, we got them as a cornerstone and then their fifty-one coops and munis that are part of that whole environment, join the community of the energy dome.
So, what happens on the technical side is the more that we get people in there, the efficacy and our analytics becomes stronger because more data means we can prove out how well our expert system is working and our behavioral analytics platform. On the other side, from a go to market is, what’s great about the network effect is that we have these, I guess you could say volunteer Salesforce of companies, sectors, nations and state saying, come join the community, come be with us in the energy dome, come be with us in the finance dome, come be with us in the manufacturing. So now they understand that they’re not alone, that they’re working together. And that is the benefit of the network effect of both technical and go-to-market.
Michael Kesslering: So just one more question, so I’m understanding the domes correctly. When you talk about the sharing of information, is that just inside the dome or is that the space dome with the energy dome or how does that work? Is there network effects amongst the different domes as well?
Bill Welch: There is, and actually what is being shared is all anonymous, so nobody knows that it’s coming from company A or B or C. Because again, these are just events and indications of compromise and sharing that information so that they see what and correlate that at the dome level. That information cannot only be shared across domes, across geographies, across verticals, company, sectors, nations, or states. And what’s the benefit of that is, is that we have spent years, time, money and resources working with lawyers around IP, around making sure that the information shared is anonymous, making sure that we’re meeting GDPR example in MIA. I know there’s all kinds of laws of sharing and collaboration. So that is where we’ve invested a lot of our time, money and resources to make sure that anonymously, this information is being shared and that we are crowdsourcing a problem. So very quickly these companies can respond.
Julian Klymochko: So, I did want to touch on all the work that you’ve been doing over the past six months beyond just executing at the business, which is going through the merger with LGL Systems Acquisition to become a publicly traded company. I was wondering, how did this deal come about? And were you seeking to go public?
Bill Welch: Yeah, so roughly about a year ago, we were thinking about the next financing round for the company. We were looking at a Series C and as a result of it, we were approached by many different SPAC, as you know, about a year ago. You know, this became an area, that was another opportunity for the markets. We trusted, working with Guggenheim, who is our financial advisor. They in turn had multiple SPACs that were interested in us and, you know, candidly we looked at all of them and we had conversations with many of them and all of them, fabulous companies, fabulous entities. They had deep pedigree, deep institutional knowledge, but as we looked at LGL, we really had the benefit of two things that we were excited about with them. Number one is, they’re backed by two great families. The Gabelli family and the LaPenta family, Gabelli family, an amazing understanding of Wall Street and the markets. And then in turn, the LaPenta family who understands mission, understands defense. So, we said, we get the best of both worlds where we can have, two entities along with their very deep bench of people come alongside us and then help us with this going public. I will tell you, since I came aboard the company, a little over two years ago. We’ve been getting ourselves ready for a public offering since that day, whether it’s our systems, our process, our people. So, the timing was very good to work with LGL. I am excited that we completed that merger as you know, last week, the New York Stock Exchange, now that we are a publicly traded company. And what I’m most encouraged by is that, you know, we have very strong investors pre and post, leading up to this event. We had amazing investors, you know, whether it’s from the Temasek, the ForgePoint, C5, Kleiner Perkins, you know, Bridgewater. I mean, we had some great investors leading up to it, and now we have some great investors in our private investment public equity, and also the shareholders that have trust and confidence of transforming cybersecurity through collective defensive. So, we’re very thankful to be in the position we are right now.
Julian Klymochko: And did you pick up any key learnings from this going public process?
Bill Welch: I did, number one is, you know, you have to make sure you have a great board. And we have an amazing board, individuals with unbelievable pedigree. We have a very diverse board. I’m very excited that Mary is our audit chair and [Inaudible 00:18:44] Tighe is on our board and very excited to have them as members of the board. You know, we have great advisors, individuals that really could advise us through the entire process, both at the financial level, as I mentioned Guggenheim, but you know, every time I turned around, I could see another opportunity for growth for us. The opportunity is vast for our company and that’s the one thing I’m most excited about is that we are a multinational company. You know, we went to a EMEA and APJ consciously, you know, at the stage of company, some people would wonder why would you go outside the U.S. well, we went to EMEA and APJ consciously because the number one, we wanted to be a multinational company, but the number two, the adversaries over there, they’re testing the networks over there. So, we wanted to learn what was going on over there before they got to the shores of the U.S. and we’re very proud of the customers we have both in Europe and in APJ.
Julian Klymochko: That’s a very smart strategy. And you mentioned the opportunity for growth. So, speaking of that, going through an investor presentation, I noticed a forecast for a 78% revenue compound annual growth rate. What will be the key initiatives behind driving this growth?
Bill Welch: So, number one is our cornerstone acquisition. We are aggressively going after our cornerstone customers and we have tens of thousands of cornerstone customers that we can secure. The second is our community organization. As I mentioned, you know, as opposed to my past where, you know, you’d have to do a single sales call to bring in this coop or this munis. The ability to where we have cornerstone customers bringing in their entire supply chain. Recently, you saw in the announcement, we secured a large defense industrial base, right? We’re now they’re bringing multiple parties as part of the community. And I think that is where we are seeing the growth is where we’re getting these cornerstone customers and then the community organization where the energy dome says, hey, come and join, be a part of the club, and let’s solve this problem collectively instead of defending in isolation.
Julian Klymochko: That makes a lot of sense. And so, from an investor’s perspective, are there any additional aspects of IronNet that we didn’t discuss that you think they should know?
Bill Welch: I think a couple of things. One is that, we are focus, very acutely on innovation. You know, we are looking at what does the next modules that we can add to the platform, because for us, it’s about giving additional value to our customers, whether that’s an additional module that they purchase, or whether that’s helping them with their hunt, whether it’s helping them with their remediation. So, we’re excited about that opportunity to continue to grow our platform with additional modules, which will increase our net retention rate, increase our footprint. I think the second thing is that, you know, we’re very consciously acutely focused on value. We want to make sure that the customers are seeing great value for the check they wrote us. And the value to us is making sure that they don’t become a victim.
And I want to go back to that when I started out in the opening of our time together is that, you know, we see too often that we hear about this company getting breached and, you know, it’s bad for them. And they get hit with fines and whatever it is. That is not the appropriate posture, the appropriate posture is all of these companies are just trying to do their best to deliver the value to their customers that were recreated for. They did not wake up in the morning and say, please come attack me. So, what we have to do is, we have to kind of shift the way of thinking that we’re seeing in the market right now that cyber is an element of national power. That cyber will continue to be used for that, and we have to do everything we can to protect companies, sectors, nations, and states, because if we don’t, it is going to be at our own bad occurrences for our own society.
Julian Klymochko: And clearly for better, for worse cybersecurity does have these tremendous macro tailwinds behind it because there’s never a lack of threats from the cyber side in the world today. I mean, just seems to be front page news, nearly on a weekly basis. So, to the extent that investors are interested in IronNet. Currently up in trading under the symbol, IRNT, just released second quarter results. I encourage investors to take a look at those as well. And Bill, it looks like you guys are off to a great start and you’re done with all the work putting into the going public process. And now it looks like that leaves you time to execute and run the company. So, thank you for coming on the show today. We’re really excited to be able to help you tell your story.
Bill Welch: Thank you, Julian. Thank you, Michael.
Julian Klymochko: All right, cheers. Bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
