The Story of FireLayers, From a Shabby Steakhouse in Netanya to a $55 Million Exit to Proofpoint

It all started at a run-down steakhouse in Netanya, Israel: Peeling paint, a battered-looking door tucked into the corner of an auto repair shop, very humble décor, family-style seating, and no menus.

The founders of FireLayers, Yair Grindlinger and Doron Elgressy, had asked my partner at YL Ventures Ofer Schreiber and me to join them here for dinner. “Bring wine,” they said, warning us that the restaurant didn’t serve alcohol. So we brought a couple bottles of red and sat at a simple wooden table while servers brought us plate after plate of meat, serving us delicious piles of chicken, lamb, and steak. From the very beginning we could tell that Yair and Doron had a keen eye for quality, appearance notwithstanding.

If you’re not familiar with Israel’s geography, Netanya is not exactly the center of the universe. The Tel-Aviv metro area, to the south, is where you’ll find most tech startups (and our Israeli office). But Yair and Doron were based more to the north, so we met half-way in Netanya, a small city on the coast about the size of Birmingham, Alabama. And “Alabama” just happens to be the name of the restaurant we met at.

TripAdvisor doesn’t lie: “Alabama” really is a hole in the wall.

We had reached out to Yair and Doron because our software had identified them as likely entrepreneurs for our fund. Ofer and I use a system we developed in-house to track over 1 million people in Israel, analyzing their backgrounds and social media activity, then following up with the most promising ones to see if they’re starting companies. Yair and Doron were seasoned security entrepreneurs who had worked together at two successful prior startups, Security-7 (1997-1999) and SupportSpace (2006-2012).

And as it happened, our timing was impeccable: They were hanging out, making plans for their next cloud security company, but they hadn’t even incorporated yet and were not looking for funding at the time – their plan was to bootstrap for a few more months before meeting with investors.

Ofer and I quickly realized we were talking to two guys with a terrific idea and the ability to execute. The dinner lasted over three hours, and by the end, we knew we were going to invest in these extremely impressive entrepreneurs. Within 48 hours, after a rapid but thorough due diligence process involving online meetings among Yair and Doron and some impressive U.S. industry contacts of ours, we had signed a term sheet for YL Ventures to invest in the brand-new company.

Liftoff

Our first investment in FireLayers, then called CloudLayers, was late in 2013. Since the company hadn’t even been formed yet, “Company” was defined in the term sheet as “CloudLayers Ltd., an Israeli company in formation, to be registered by the Founders.” Yair and Doron’s insight was that there would be a huge market for protecting cloud applications—and that most of the existing cloud security vendors were going about it wrong. FireLayers is a Cloud Access Security Broker, a category identified by Gartner in 2012. But most CASBs used the APIs of cloud applications to provide security, an approach that was limited by the capabilities of each cloud app’s API.

By contrast, FireLayers uses a proxy server—a gateway—between users and the cloud applications they are accessing. As a proxy server, it is able to detect, analyze, protect, and respond proactively to every possible security threat, not just those that are accessible via an API. This proxy-based approach was super innovative, and is still regarded as such. Yair and Doron had the foresight to see beyond what the market needed in the near-term, as most competitors started with the API approach, which was far less complicated and time-consuming to develop. It was a leap of faith for Ofer and me to trust the team’s ability to deliver such a cutting-edge product – but we went all-in.

In a recent email, Yair wrote: “When we started the company we had a critical board meeting where we decided to leapfrog the market given that there is competition on the basic functionality, and build the best product in the market. With YL Ventures’ outstanding backing, we managed to do it.”

We knew that this was going to be a huge market: At the time, the global cloud security market was estimated to exceed $6B by 2016. Today, Gartner predicts that 95 percent of large enterprises will be using a CASB by 2020. But back in 2013 it was still a tiny market, just getting started. Also, there were competitors, led by Skyhigh Networks and Netskope, each of which had raised over $20 million by that point. But they were focused on the discovery and analysis functions of a CASB. Yair and Doron’s product vision included both of those features, and also included features to protect (by deploying and enforcing policies) and respond (by mitigating known security gaps in thousands of cloud applications). We knew there was a big opportunity.

Immediately after the investment, Yair and Doron renamed their company to FireLayers, hired superstar VP Product and U.S. General Manager Tomer Magid (with whom they worked at SupportSpace) and began the hard work of building the business.

Growth and development

Over the next two years, the FireLayers team invested an enormous amount of time and effort into developing their product (led by Tomer and star engineers Boris Gorin, Chen Bekor and Fabian Benaderet), perfecting its performance, forging strategic partnerships, and building a sales pipeline to take it to market.

One of the most critical partnerships was with Akamai Technologies, a content delivery network. Akamai (especially Akamai Labs CTO Andy Champagne and then-VP Corporate Development Jeremy Segal) saw the value of FireLayers early on, and realized that it had something in common with the startup: They both relied on proxies, or gateway servers. When you access content via a CDN, you’re really going through a vast network of proxies. For FireLayers, just like for Akamai, performance and uptime were critical, because if customers can’t get through the proxy, nothing works at all. With Ofer and me assisting (YL Ventures goes back a long way with Akamai), FireLayers struck an excellent partnership arrangement with Akamai in 2014, with a long-term plan of enabling FireLayers to be deployed on Akamai’s network.

Akamai believed in the promise of FireLayers so much that it not only became a strategic partner, it also joined YL Ventures in a fresh new funding round for the company. And the Akamai team worked closely with FireLayers thereafter to help ensure that its product would be as high-performance as possible.

Ofer and I (the only VCs in the company) helped out whenever we could, complementing the team’s sharp execution skills. We sometimes introduced the FireLayers team to potential partners and customers, occasionally rolling up our sleeves and helping them recruit engineers as well as sales executives, screening hundreds of resumes and conducting dozens of interviews on their behalf. We also acted as an in-house PR firm for the company, securing briefings with top analysts and generating countless articles in top tech and business publications. Finally, we were intimately involved in the M&A bidding and negotiation process as FireLayers had plenty of suitors and several serious offers to consider.

At some point, 451 Research’s Senior Security Analyst Adrian Sanabria posted in a series of tweets: “FireLayers is an interesting one – the first CAC [cloud app control] vendor that made me realize the potential of a security gateway extended to ADDING features. Their example to me: SaaS app you want doesn’t support 2FA, which is a corporate requirement? Just add it! < blew my mind”

The exit

By 2016, it was becoming clear that FireLayers’ bet on CASB with a proxy architecture was a very smart one. FireLayers had received excellent coverage from analysts focused on the space, including Gartner and 451 Research. It had trials underway at a wide range of excellent companies, paying customers on the books, and more customers in the pipeline.

What’s more, M&A activity in the cloud security space was heating up. Over the past few years, we saw many acquisitions of CASB vendors. In 2014, Imperva acquired Skyfence. In 2015, Palo Alto Networks acquired CirroSecure, Microsoft acquired Adallom, and Blue Coat Systems acquired Elastica. And so far in 2016, Cisco acquired CloudLock, Oracle acquired Palerra, and Symantec acquired Blue Coat Systems. The market momentum was clearly there.

Proofpoint was not the first company to make an offer for FireLayers, but it was clearly the best fit. Proofpoint itself has a terrific management team and is on a growth trajectory that I predict will lead it (together with FireLayers) in the long-run to exceed the valuations of current security market leaders, such as Check Point Software and Palo Alto Networks.

What’s more, Proofpoint has an approach to cybersecurity that dovetails very nicely with FireLayers. Proofpoint’s main business is protecting enterprise email systems against phishing and malware, and it’s used by many Fortune 500 companies. It’s clear that Proofpoint’s next job is to expand into protecting cloud services—and that’s where FireLayers comes in.

During the negotiations of this transaction, I was impressed by the intelligence and the diligence of Proofpoint’s executive team, including CEO Gary Steele, EVP/GM Information Security David Knight, EVP Corporate Planning & Development Manish Sarin, and VP of HR Sharyl Givens. All of them showed a fantastic level of vision, commitment, and knowledge.

Sharyl, Manish, and David deserve particular mention. The three senior executives travelled all the way from Silicon Valley to Israel earlier this month to personally meet with every single FireLayers employee to make sure they’re happy coming to Proofpoint, taking care of each one individually, recruiting, motivating, and retaining. Because of the work of Sharyl, Manish, David, Yair, and Doron, fully 100% of FireLayers employees have agreed to join Proofpoint. This is unheard of in an acquisition.

The transaction was announced today, almost exactly three years to the day after that momentous steak dinner at “Alabama”. I couldn’t be happier about the outcome. Not only is it an excellent exit for the company and its investors, it’s also a well-deserved success for Yair and Doron, two of the smartest, most hard-working entrepreneurs I know. They are also incredibly fair, warm-hearted, and generous individuals. Ofer and I are very proud to have played a small role in their success with FireLayers. We congratulate them and we wish them the very best at Proofpoint.