Two Weeks to Term Sheet: The Axonius Funding Story

As any entrepreneur knows, fundraising can be a long and arduous process, full of high pressure meetings, comprehensive slide decks, and prolonged negotiations – each of which takes away from a founder’s true passion, building a company. Having just closed our third fund here at YL Ventures, we are familiar with the stresses of fundraising, and that is why we do things a little bit differently.

While we cut no corners in our process, we are keenly aware of the burden that fundraising places on teams, so we move quickly and efficiently, offering meaningful feedback and a quick “no” to companies that aren’t a fit, while moving at lightning speed when we find a world class team addressing an exciting market. In the case of Axonius, a company addressing the need for improved IoT security for the enterprise, we found an example of the latter.

Today, we proudly announced that Axonius has closed on a $4 million seed round, led by YL Ventures, with participation from Vertex Ventures, Emerge and Ron Reiter. From the outset, we knew that this was a special opportunity – and we moved from introduction to a signed term sheet in only 16 calendar days.

June 7th, 2017

Here at YLV, we employ an aggressive outbound sourcing strategy to complement our inbound deal flow, as we know that the best teams aren’t always going to show up at our front door (though we welcome them when they do!). In the case of Axonius, the founding team of Dean Sysman, Ofri Shur, and Avidor Bartov wasn’t even looking for capital when one of their advisors tipped my partner Ofer Schreiber and me off to what they were working on.

Within minutes, Dean and I were on the phone, and I invited him to come to my hotel in Tel Aviv to share more. We sat in the living room of my suite (first time for everything!) as Ofer and I listened to Dean tell us about the “Cambrian Explosion” of unsecured IoT, mobile and cloud-connected devices in corporate environments.

Intuitively, we understood the market to be large. Gartner estimates that the number of IoT devices worldwide will be 8.4 billion in 2017, growing to 20.4 billion by 2020. Dean explained to us how each device that accesses a corporate network is a security vulnerability, yet the typical Chief Security Officer (CSO) doesn’t even have visibility into how many devices are on their networks (check out Dean’s colorful post on the subject, here, and read cybersecurity analyst Adrian Sanabria’s excellent post about Axonius here – highly recommended!).

Initial Diligence

One of our core principles at YLV is that when investing at such an early stage, our main bet has to be on the jockey (the founders) rather than the horse (the idea). From that first meeting in my hotel room, I knew these jockeys were special.

To get comfortable this quickly with a team, there can be no question about their credentials – and here there was no doubt. Dean, Ofri, and Avidor are former officers in the famed Unit 8200 (the equivalent to the NSA in the U.S.) of the Israeli Defense Forces (IDF); the 8200 deals with, amongst other things, offensive and defensive cyberwar.

It wasn’t just their military background that impressed us, however. Dean, the CEO, co-founded a YC-backed cybersecurity company, Cymmetria, where he spent three years selling to U.S. executives as the company’s CTO. Having previously earned a computer science degree from Haifa University at the age of 19, it was apparent that Dean had the kind of skills and experience that we love to see.

Ofri Shur, Chief Product Officer (CPO), graduated from the IDF’s prestigious Talpiot program, designed for recruits who excel in the sciences; it is the MIT of Israel, only harder to get into. After eight years in the 8200, he briefly served as CTO of KayHut, a cybersecurity provider, before co-founding Axonius.

Avidor Bartov, Chief Technology Officer (CTO), started hacking at age 13. When he was 17, still in high school, he began working as a penetration tester. Like Dean and Ofri, he served in the 8200 before co-founding Axonius.

So, there we had it: three co-founders under 35 with roughly 25 combined years of relevant cybersecurity experience. Even for Israel, where the talent is concentrated and exceptional, these guys were off the charts. Not only that, but they had actually worked together in the IDF; their qualifications were exceptional, but more importantly they had already collaborated as a team.

In this group of three founders, who chose to attack one of the biggest, ugliest security problems of the 21st century, we found jockeys who had said “screw horses, let’s drive a Ferrari.”

Deep Diligence

Impressed with the team and problem space, it was time to validate our initial excitement.

In a single week, the Axonius team spoke with six CSOs in our vast network, including two of our Venture Advisors, Justin Somaini of SAP and Andy Ellis of Akamai. With each call, the team improved, taking in key pieces of advice at each step and incorporating that advice into future conversations. Not only did they show the CSOs that they were onto something special, they showed us that they could adapt and iterate at an incredible pace.

Without compromising their core beliefs or strategy, they showed a willingness to accept feedback and incorporate it – this impressed the hell out of us. In the face of high pressure discussions with sharp IT executives who ask difficult, unpredictable questions, the team confirmed our suspicions that they were the kind of people that we strive to partner with.

June 22nd, 2017

With high conviction, it was time to move quickly. It was evening in Israel when I asked Dean, Ofri, and Avidor to get on a plane to San Francisco; four hours later, they were on a nonstop flight from Tel Aviv, and we had dinner the next evening at El Paseo, the nicest restaurant in Mill Valley, just a three-minute walk from our Silicon Valley office.

For six hours, we talked about our backgrounds and shared our histories. At this point, we weren’t running through resumes – we talked about our families, our interests and how amazing it was that somehow the four of us had ended up at dinner together on a quiet summer night, just north of San Francisco. Sometimes one of the last pieces of diligence in a deal is a “chemistry check”, and just as it had been with each of our interactions of the preceding two weeks, the fit was obvious.

Many investors give lip service to chemistry, but for us it is absolutely critical. We take our commitment as value-add investors very seriously, and because our model calls for fewer investments than the typical seed fund, we have the bandwidth to commit fully to each company. When we make a commitment, it is complete – through the good times and the inevitable struggles. We partner with our companies for the long haul, normally five years or more, and for this to work there must be great chemistry.

My admiration for the team only grew with that dinner. In front of me were three founders who thought on a grand scale, articulated their ideas clearly, and proved to me that they had the talent, charisma and drive to execute on their vision.

And so, I did something I had never done before. I pulled out the latest term sheet draft, which had previously been negotiated back and forth, and we signed the deal in person, together at the table (we had to ask the waitress for a pen!) It felt like we were in a movie, and just like that, a new bar was set for time to term sheet at YL Ventures.

Onward

The transaction closed on July 10th, a month after our first conversation. Since then, we’ve been keeping true to our promise of helping the team turn this vision into a company. While we see great value in being able to move quickly early on, the velocity with which we came together represented only the beginning. Axonius has come incredibly far in just two months, and the product could be ready for general release by early 2018!

In the meantime, we will continue to connect Axonius to potential customers, distribution channels, follow-on investors, industry experts, and analysts. We’re also developing a go-to-market strategy, hiring talent, conducting research, and offering feedback on product design. At the end of the day, we are a service provider, and we will do everything in our power to help Axonius succeed.

Final Thoughts

Sometimes investors can come off as intimidating and difficult to reach; that is not how we operate. We want to meet new companies, and we love to hear passionate entrepreneurs share their dreams. We want to be approachable because meeting founders is one of the very best parts of this job.

Fundraising can be painful, but we aim to make it less so. We are honest, direct, and always strive to be helpful, regardless of whether we ultimately invest. Maybe we’ll pass and stay in touch, or maybe we’ll get you to Mill Valley in two weeks to sign a term sheet – you never know! But what’s for sure, a YL Ventures due diligence process will get you further along with exceptional U.S customer introductions and valuable unbiased feedback.

We view our diligence process as a cooperative learning experience. There is no such thing as the perfect team or perfect idea, but being able to react and adapt, as the Axonius team demonstrated, goes a long way in shoring up the inevitable uncertainties in any seed deal.

We at YLV believe that Axonius is poised to successfully address this “Cambrian Explosion” of devices, and that they will ultimately prevent massive cybersecurity crises across enterprises. It is an honor and a privilege to partner with such an amazing team, and we congratulate Dean, Ofri, and Avidor on this first step of our journey together.