The Exchanges

Q you last came on the show back, and I believe it was September of last year, so a couple months ago, you'd articulated, you know, 250 customers, ACVs in the 200 thousand-ish range, so people can kind of back into your revenue. You're owned by private equity companies, so they probably can provide you some cushion, but how are you thinking about the potential, you know, recession and virus specifically?

A Yeah, well, you know, being a former VC, uh, having lived through, this is my fourth, uh, sort of capital market crisis, if you will, regardless of how it got started. Uh, one cannot take enough precaution. There is no penalty to being extra careful. So we have, in fact, uh, even before this really became top level news, starting in first part of March, we started thinking about Q two. Uh, we expect Q two to be down 20, 25%. We have, uh, asked our employees to take a reduction in pay, which they have. Uh, we are, uh, continuing to support our existing customers and encouraging more expansion, more face-to-face time. Uh, and so, uh, we've tried to keep the level, as we used to say in the VC business, keep the bridge at the same height and lower the water so that the gap to get the ship through stays the same. We'll see how that goes. Uh, we haven't, but basically we have increased our safety buffer in our cash and balance sheet capabilities. Uh, and our, our, uh, investor has been very supportive. They've not put another dollar in, not necessary, and we're going to get through it on our own.

AI assessment note: “we expect Q two to be down 20, 25%. We have, uh, asked our employees”

Q They took two percent of the company or two percent of the unallocated option, option pool for employees and basically said, hey, can we pay 30% of your salary, instead of paying you cash, awards you stock, so that when you come out on the other side of this, everyone now is a part owner of the company because they took equity instead of stock. Do you like that approach?

A I do like that approach. And if you've got the kind of equity pool to do with, and a lot of VC pools, the pools are quite large. But as you know, I'm, my, my backer, STG, is a private equity group, and our pool isn't that big. We have already, in fact, done that. The problem, and not the problem, an issue with that is you don't know when it's going to end. So if, if I give you something now to take a pay cut and you come back three months now, well, I need more because you did this three months. So you get into this slippery slope thing. That's the only concern I have for that strategy.

AI assessment note: “I do like that approach. And if you've got the kind of equity pool”

Q Help me understand the expansion mechanism. So they get started with you. Do they deploy you typically across all 500 of the routers, or they start small?

A No, that, that's the, yeah, that's the point. They start small. So they'll, what they'll do is they'll overbuy, so they get a volume discount. That's a good thing. And then they'll, they'll start small. They'll start small at, you know, maybe a hundred, a 150. They'll tune that up. They'll get that running. They'll train their people, and they'll understand how it exactly is working. Uh, they'll get some analytics. They'll, they'll see some aha moments. Every time we run initially, people find things they didn't know existed, or problems they didn't know existed. So, with that, then they began to, they move it out, and so forth. Interestingly, if, uh, you try to, if, let's say you bought 500 and you tried to model seven 50, not a typical once you get rolling, our software accommodates that to a point, because we want you, we will always find more than you think you have. That's just the nature of the world. So, uh, that always, you know, makes for another sales call, another opportunity to expand the business.

AI assessment note: “No, that, that's the, yeah, that's the point. They start small.”

Q And why, so where did you start to kind of say, I got to do a deal, right? I mean, was it, you're burning a million a month and you only have three million left in the bank. So you only had three months to run one. You're like, I got to figure something out.

A No, it wasn't quite that. I mean, we, like I say, we, we've done a great job of managing our cash, always surviving. But I couldn't invest like I needed to invest. Uh, the product was working well. Customers were wanting to, I needed to build a services group. I didn't have the capital to bring those people on. You got to invest in people a little ahead of when you collect revenues. So I was kind of, uh, always robbing Peter to pay Paul, and that's not the way to grow a business in the market that we're in. Like you said, this is a very robust business right now. I needed cash. I needed capital. And so I, I went for a growth, growth partner, That I found in, in Symphony.

AI assessment note: “No, it wasn't quite that... I couldn't invest like I needed to invest.”

Q Yeah. Well, I mean, look, most people aren't vulnerable about stresses. I'd love for you to be, because we'll learn a bunch. I mean, when you say stresses in the company, what was it specifically? Was it something technical or tech stack related or something else?

A No, we, oh, look, um, you know, you, you, uh, you set goals, and you sometimes miss them, and you may over-invest, or you under-invest in certain areas, so the stresses had to do with cash, cash flow, Uh, we, we actually grew cash over the last year, but not without a lot of stress on the team. Uh, I'd had some attrition that I didn't like, uh, cause I couldn't afford things as much as I wanted to. And honestly, uh, growth rate, uh, was, uh, was sagging, uh, relative to the year before. So this is an opportunity to refresh the balance sheet, uh, reattract good people. I've already built the team back to what it was and then some. Uh, bringing on some more, uh, senior people out of, uh, good companies in the Valley here. So it was, it was a moment in time when I needed to do something and I needed to get it done. I couldn't shop. I couldn't, I couldn't work the problem forever. I just had to do something and, uh, the shareholders were supportive. So we did it.

AI assessment note: “so the stresses had to do with cash, cash flow”

Q All right. So, Let's first touch on Red Seal for people that missed your first episode in terms of what you do. And then I want to touch on the virus and how you're kind of remodeling things. So what does the company do?

A Well, we do a lot of things. We primarily model the network. Uh, and what I mean by that is we create a software model by which you can investigate how your network's been put together and what it's good at, uh, defending. We do a calculation of vulnerability calculation, or we can prioritize your vulnerabilities in a context of the network. So, there are really three big things. We do visibility. We identify all the assets that you need in that network, which is, believe it or not, there's a lot of visibility software out there, but it always misses something. We always find it. There's compliance, obviously, getting to be a bigger and bigger deal now than ever, and then there's risk management, and that's when we do the vulnerability in the network context and give you a prioritized list of what you need to fix and how to make it better. So that's really it.

AI assessment note: “We primarily model the network. Uh, and what I mean by that is”

Q How do you get up? I mean, this price point, right? I mean, I would say world-class network retention is like 140%. Why aren't you there yet?

A Well, um, you know, our product, uh, sometimes falls prey to, um, people leaving and losing job, losing their job or whatever inside the network. And we need, we need active management to use the product effectively. And we work hard with our customers to make sure we can do that. And literally, so sometimes configuration information for all the routing equipment, those routing equipment guys, Cisco, Palo Alto, Checkpoint, Fortinet, Juniper, all of them, they change their stuff all the time. And occasionally we get, uh, So they upgrade our software. We got to catch up with it. So the customer doesn't quite renew. Maybe we come back. Once we get all that figured out, we are constantly playing catch up with the vendors in the network. And that's just a problem for us.

AI assessment note: “we are constantly playing catch up with the vendors in the network”

Q That's interesting. And do you service a specific market more than another? For example, you know, hedge funds or, you know, CPG brands or?

A No, it's interesting because everyone, cyber is everywhere, fact, too. Everyone sort of has come along like we all have over the last 30 years, so they kind of have the same problems. And it turns out, uh, usually the bigger, more complicated networks, I would describe us as, uh, the sweet spot. Uh, interestingly, we're not, uh, people who have cutting edge capabilities and, and really are on the hairy bleeding edge of things. They don't typically use this. It's the people who have It's the people who have marketing. It's the people who have fundamental services that depend on the interconnectivity of the internet and all the digital, digital things that are out there. Those are the people that need us because they focus on their products. We focus on their security.

AI assessment note: “No, it's interesting because everyone, cyber is everywhere”

Q Yup. So, so here's my, here's my question to you. That memo you sent out last Friday, give us a little taste of, I mean, what did that exactly sound like? Like, did, did everyone take the same cut or did different roles take different cuts or?

A No, everybody took the same. Uh, my goal was that we're gonna, we're all gonna sacrifice a little bit in order to survive. Uh, there are no special dispensations. Now, you know, if someone's got an issue, they can bring it up and we'll deal with it. But, uh, to my amazement, interestingly, one of the other people that was affected by this reduction, her husband had just been laid off. Uh, so the fact that we didn't lay her off, you know, she was ecstatic. You know, the, The downside right now, the, the rumors, not rumors, just people talking stuff. There's a lot of bad news going on right now. So, so I figured what we, you know, keep people employed and keep my customers up and running. You know, those are two very wonderful outcomes.

AI assessment note: “No, everybody took the same. Uh, my goal was that we're gonna”

Q Yeah. Let's roll back to Red Seal here for a second. So has anything changed since eight, you know, six months ago when we chatted in terms of your target or are you still seeing ACVs kind of in the 200,300 thousand sort of range?

A No, yeah, actually, uh, it's, that's all running about the same. One of the things that we've implemented and we started this research last year Uh, what, you know, I, as I said, we model your networks. We create this software model that you can test and do all kinds of cool things with your network. But what we learned along the way that the world, the world has not done a good job with just basic cyber fundamentals. So we have not taken our product apart, but we have emphasized the steps along the way to get to that model so that Uh, each phase delivers value and delivers a unique report. Inventory, for example. Endpoint inventory. Network segmentation. These are all things we can do prior to that model, because a model is hard to do. That's, that's a very complicated calculation. So, we have, uh, broken our Uh, value journey, if you will, for a customer into pieces. And that's what we've done. And that's so far it was Q one. It was very successful. We actually exceeded planning Q one.

AI assessment note: “actually, uh, it's, that's all running about the same.”

Q you look at a company like KnowBeFor, which has really come out of nowhere, and it's very much the opposite approach too. They're in obviously cybersecurity space. They sell it for 15 bucks a seat, but they've scaled really fast to 40 or fifty million in ARR. How do you look at a company like that, both in terms of the technical prowess of their solution and their growth strategy?

A Well, uh, that's, I don't know what the technology elements are per se, the installation and all that requirement. Uh, our software gets embedded into the fabric of the network, into the devices and everywhere, so it's a longer deployment cycle, so it's hard to compare that. Um, if they're doing sort of individual endpoint stuff, I can see where they could get that growth rate very fast. The biggest friction to deployment is, uh, how embedded is the technology. There's a lot of soft, there's a lot of, uh, cyber software that just sits in front of things. That's easy to install very quick. You download it, put it on a device and off you go. So that's how I think that can go fast. Ours is not that simple.

AI assessment note: “if they're doing sort of individual endpoint stuff, I can see where they could get that growth rate”

Q be wondering to just cybersecurity in general, right? It will continue to be over the next many months as the election, the presidential election in the States come up, you know, Russian interference in US elections, like this sort of stuff. Can you make any comments on this? I mean, is it a real thing? Is it not a real thing? Do you feel strongly about how the government's prepared?

A It's a very real thing. I feel very strongly we are not prepared. I actually have customers that are dealing with some of this international interference and we're seeing it in their, they're seeing it in their networks, uh, commercial and, uh, government. So it's a very real thing. Uh, and you know, we're all working at home and the government doesn't, you know, everything's being pushed. So if the election gets crushed, I'm just not sure crushed, meaning calendar wise, I'm just not sure how they're gonna sort it out, but it is a very real thing. And, uh, I have, you know, we, we have sent A lot of ideas in and so forth about how to help secure local things. It, it's a problem.

AI assessment note: “It's a very real thing. I feel very strongly we are not prepared.”