Cybernomics Radio
Welcome to Cybernomics, the podcast where we break down the latest enterprise innovations and challenges shaping the Information Security industry. Whether it’s AI, cloud computing, or digital transformation, we dive deep into the forces driving businesses forward.
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Cybernomics Radio
Market Watch: When Markets Fall, Savvy Investors Go Shopping for Cybersecurity Companies, with Richard Stiennon
Market fluctuations cause cybersecurity stocks to drop 4-7%, creating buying opportunities for savvy investors despite fears surrounding Trump's new tariff policies.
• Tariff impacts vary across cybersecurity companies—hardware manufacturers like Palo Alto and Fortinet face direct challenges with 54% tariffs on Chinese-made equipment
• Current tariffs differ from historical ones as they function more as negotiation tactics than revenue generation mechanisms
• Despite the current sell-off, cybersecurity stocks show remarkable resilience with CrowdStrike up 242%, CyberArk 162%, and Palo Alto 128% since January 2023
• The entire cybersecurity industry appears to be "for sale" with many funded companies selling for less than their investment capital
• South Korea is emerging as a potential cybersecurity innovation hub, actively working to replicate Israel's success though facing challenges breaking into the US market
• When researching potential acquisitions, look for unfunded companies 10-15 years old with flat or steadily growing headcount as indicators of stable profitability
Check out IT Harvest for research tools that can help identify potential acquisition targets in the cybersecurity space, with filters for headcount, growth rates, and funding levels.
Palo Alto is down, CrowdStrike's down and everybody's down by like 7%, 4%, so nothing to balk at. They're descending, I wouldn't say at a rapid pace or at a rapid rate, but they are going down, which means some of us are going shopping. But I would think that cybersecurity companies shouldn't be so concerned about the tariffs. In your view, what are the reasons for the downward moves?
Speaker 2:Yeah. So first of all, you know, when the market gets spooked, all stocks suffer, right? So it's not necessarily that people are looking at Zscaler or Palo Alto and going the tariffs are going to hurt them in some way, increase their costs. You know which probably won't, except in Palo Alto. You know manufacturers, a lot of hardware in China, so there's 54% tariffs now on all the hardware. But obviously they have such a big market but it's not going to change the price of the product very much to people. Same with Fortinet. All their gear is made in China as well, so that's some direct impact.
Speaker 2:But what we're really seeing is the market. Knowing history, knowing that tariffs are stupid, no matter how you cut them, even when it's oh, you're dumping products into our market at low cost. So we're going to raise those prices by imposing tariffs. That's stupid too right. If China wants to give us stuff below cost, we should take that right. That's good for our economy. Bad for our local industry. That's competing with them, of course. But hey, you know we don't manufacture computers in the United States and we don't manufacture everything else that they make here in the United.
Speaker 1:States, and the consumer doesn't care where it's manufactured. They don't even care what they're. Yes, they shouldn't right? Yeah?
Speaker 2:You know, if you're a globalist of some form, then yeah, you shouldn't care. You want the best quality. And you know Adam Smith said you know that's why you should have separation of duties kind of thing, where the best manufacturer of X should produce all of X, so that everybody gets the best product.
Speaker 1:So collective panic, that's your main reason. Collective panic.
Speaker 2:If tariffs are being imposed, there is going to be a recession, and the last two times that we did this, the recessions were drastic, right, so I think it was 1988 and 1930. Depression after Smoot-Holly was imposed on just 2,000 different things. This, of course, what we're seeing right now isn't a tariff on specific things, it's a tariff on countries, right, so it's punitive tariffs and it's calculated with the stupidest formula ever, right tariffs? And it's calculated with the stupidest formula ever, right? It's like the balance of trade divided by how much exports they have to the US, and that's how much, supposedly, they're hurting us, which is ridiculous. It doesn't work that way. And then charging them half that in retaliatory tariffs, it's gone.
Speaker 2:There's, you know, the island of Reunion, you know, which is a French territory in the Indian Ocean, a population of 800,000 people. It's got what? A 41% tariff. And I've no idea what we import from Reunion. Beautiful little island, beautiful people and this odd tariff, right? So just the paperwork and the clogs at our borders as we attempt to determine where something comes from and whether a tariff is due, and then who to. To the next, there's a new tariff. What about all the stuff that's on ships and trucks? Who pays that tariff? Do the ships turn around? Do they call home and say hey, you know, we've got a crate in the back of the ship here and you're from Martorius or Reunion and you owe a 41% tariff to somebody who even knows what form to fill out to pay that right. It's just like none of this was thought out, so there's nothing there in order to make it to pull it off right. It's going to be a cluster.
Speaker 1:The only difference that I can think of and I think that there's a misconception here, a common misconception the difference between the tariffs today and the ones that everybody's drawing the parallel to, so, the tariffs during the Great Depression. There is a significant difference here, right? The misconception is that the Trump tariffs are there for revenue, like the tariffs during the Great Depression. The reason that was given was to increase revenue. They were like if everybody pays tariffs, we're going to increase revenue. Of course, that didn't work at all for all the reasons that you just said. You're carving into the profits of these foreign countries which our local domestic people are going to now pick up, and then obviously, that gets put on the backs of the consumers, which is why everybody hates the Trump tariffs, because they're like it's not going to increase revenue, it's going to burden the consumers, it's going to piss off our allies and our partners and everybody that we're doing business with. But I'm going to play devil's advocate, right, everybody is shitting on the tariffs. I'm going to play devil's advocate here and say maybe at least the reason that Trump himself is giving is not that the tariffs will increase revenue, is that it would be a lever that you can pull right. So Vietnam immediately got on the phone. I think the Philippines also immediately got on the phone and said hey, we don't want 10% tariffs.
Speaker 1:So the Trump administration goes well, what are you going to do to get those tariffs removed? And so then they're able to negotiate better trade deals by taking the tariffs away. So, instead of not having tariffs and incentivizing companies or countries or whoever to do business with us, you're putting them in a world of pain. You're sticking your stiletto heel into their rib cage and then you're saying say uncle, say uncle, do what we want you to say, what we want you to do, and then we'll take the stiletto heel out. And so that's a negotiating tactic, one that is brutal.
Speaker 1:And I'm not saying that I necessarily agree with it. I don't even understand half of this stuff. So whether I agree with it or not, is is, is not, it doesn't matter, um, but I, I'm. I hear everyone pointing the finger towards the revenue model being just asinine and is not going to work. When really, over here, if you kind of shift your gaze a little bit in your perspective and you look at it and focus into the tariffs as a negotiating tactic, maybe that changes a little bit. What say you?
Speaker 2:Yeah, I'll buy that because it's very mafioso-like and Trump has always admired the mafia in New York City, so you learn that you know at their.
Speaker 1:You give them the squeeze and then you take the squeeze off.
Speaker 2:It's a protection racket. Of course. It's illegal to do that. You're playing with fire. It would be, you know, if Trump were first of all. If there's something we needed from all these countries, then we. You know this is a good lever, but the lever is going to be what can you do for my family? That's what Trump's going to be bargaining for. Trump will literally be able to enrich himself and his family with government extortion against all these countries. If we think for a second that Trump has this massive team inside the US Commerce Department ready to negotiate with you know 100 countries on these tariffs and get deals from them, from Maritorius and Reunion and a few islands populated with penguins, we are delusional, right? He sent his you know top guy to Russia to basically give away everything to Russia when they asked for a ceasefire.
Speaker 2:Okay, here you go. Nothing in return. So yeah, they're horrible negotiators Trump is fine at. You know it's easy to negotiate and win when you're giving away something the United States has and you're getting back. You know, some millions of dollars spent on your golf course?
Speaker 1:Yeah, it's like it's a shakedown. Yeah, it's a shakedown, shakedown. Yeah. And if you were doing it on behalf of the country, I think that's what a lot of the voters were counting on. But you are providing a little bit of a different perspective here, which I totally respect, that maybe he's doing it not for the country, but for himself and perhaps for his family. There's no proof of that.
Speaker 2:There's no proof that he's ever done anything for his country. Well, there's no chance he had bone spurs.
Speaker 1:Right, yeah, yeah, he didn't. He didn it. But then when you look at the alternative I don't want to get into the politics of it, but there are alternatives and I don't think that the Biden family necessarily like it'll be really hard for us to prove that they were doing anything on behalf of the country, at least not something. At least that could be a twofer that could benefit the country and also benefit the Biden family.
Speaker 2:The last time the stock market was crashed was the last time Trump was in office and the distribution of vaccines were all under the Biden administration. And I'm not going Biden personally, I'm going the Democratic apparatus that wrested control from the Trump regime and was in place to offer a little sanity in how things work, and we had that for four years and now we don't have it anymore Again and we're back right to square one. Right, the stock market had dropped 50% by the time Biden was inaugurated and he it back now, mind you, with some rather you know astonishing things. He pumped $2 trillion into the economy and barely impacted inflation. I was just totally shocked. I said, maybe that's the answer. Just pay everybody a living wage today. Obviously it doesn't have an impact on inflation. It's like we had to throw out the textbooks because we're in a new, new world. But right now, if these tariffs hold and that becomes the new way of life, then yeah, be prepared for the stock market to go way lower.
Speaker 2:I just let you know now, I'm horrible at offering stock advice. I'm usually wrong. Just to let you know now, I'm horrible at offering stock advice. I'm usually wrong, rather pleased with myself that the day that there was a Saturday night was when Trump imposed tariffs on Columbia and, you know, by Monday or something, he had worked out a deal, like you said right and rescinded that right Because he's wishy-washy and doesn't know what the heck he's doing. But that was the day that I went totally into cash, because markets do not like instability and uncertainty and if a president can tweet tariffs, which is what he did and cause them to be imposed, that's uncertainty. Nobody knows what this bad man is going to do next.
Speaker 1:Markets will crash. So the other side of the coin here is okay, collective market panic. They are jumping on the panic bandwagon right and, like you said, we don't know if it's not panic.
Speaker 2:It's calculated risk aversion. If it were panic, the market drop would be yeah yeah, yeah, yeah it's just seven percent a day yeah, yeah, you know you only go, you know, 10 days. That's close to 70.
Speaker 1:That would be quite a dramatic drop so let's say that the whether you call it a collective panic or a collective risk aversion a calculation that is anticipating that these tariffs will collectively hurt the economy, you don't have to go all that way.
Speaker 2:You're just betting that the rest of the market will think that okay, so there, yeah, so there's some.
Speaker 1:There is.
Speaker 1:Whatever it is the.
Speaker 1:The cyber security industry seems to be participating in that correct right and, because of the perceptions, like you said, it may not be tied to anything real, but just the perception that the rest of the market is doing this is causing them to uh, drop as well.
Speaker 1:Well, there is another side to the coin that could be attached to tangible assets within the cybersecurity industry and you mentioned this briefly a little while ago which would be the supply chain issues. So if cybersecurity companies are doing business in China, hardware is being made in China, vietnam, other Asian countries who are hit by these tariffs, then obviously they're going to suffer in terms of having to pick up the slack right, because we know that those countries are not the ones that are going to pay are going to increase their prices. It's going to be the American companies. So the Z scalers of the world, the crowd strikes of the world, who are going to be picking up the slack there. So, as these tariffs, or as these stocks, rather, or the stock market, continues to drop, what do you think we can expect to see in terms of cybersecurity prices, not just the price of the stock, but buyers doing business with the Z scalers of the world? Are we going to see CISOs, cios, companies paying more than they were a year ago for the same products and services?
Speaker 2:No, because demand is going to drop, and so the ripple effects of course of a stock market drop is people get conservative because the stock market sees all and it predicts recessions. So a stock market drop predicts a recession, and quite a few of the big bank analysts are predicting that for the second or third quarter or third or fourth quarter. During a recession, people stop spending money, so they push out sales cycles. So people that are considering Zscaler will go well, yeah, our revenue is down, so we're pushing this off until the next year. So everybody's sales cycle gets extended and sales drop, which leads to drops in stock prices later on. But this is the market pricing that in.
Speaker 2:That's what we're looking at today Two consecutive 7, 8% drops in Zscaler. So we're going to live through that. There's no way out of it other than a complete, you know, rescinding of all these silly things. Just kidding, you know, let's move on back to where you go. And everybody who bought stock today is going to think they're really, really smart because they bet bet it on a uh, um, I can't think of any nice words for it but they bet it on. They bet on Trump reversing himself. Yeah.
Speaker 1:Trump reversing himself? Yeah, or at least they bet on the market not being as concerned about the decisions in the future, which seems to me pretty unlikely unless something drastically changes with the tariffs, the market is assuming that these will be removed before they're implemented. Do you think that that's priced in the sell-off?
Speaker 2:Priced in the sell-off. That's why the sell-off's only been 14% to 20% so far. It would be 50% to 60%. If it thought this was a calculated, both houses of Congress had voted for it and the people had asked for it, then, yeah, this would have been the worst disaster ever.
Speaker 1:So the fact that it's up to the whim of one person who is pretty volatile in his thinking and dealings may be what's causing the problem, but also not making it as bad as it possibly is.
Speaker 2:The exact same way that Trump got elected. You talk to a lot of people now who say they voted for him and they say I didn't think he would actually do this Right. Project 2025 was published and we're just following that playbook right now. Most people who voted for him didn't think he'd do that, and that happens in every election, every single one.
Speaker 1:Well, he did make it pretty clear do that and that happens in every election, every single one. Well, he did make it pretty clear. He said the most beautiful word in the dictionary is tariff. Yep, he did, I mean. To me there wasn't any clearer indication that he was going to do this than that, yeah, and yet here he does.
Speaker 2:So as a sense of perspective, though, I've been tracking since January of 2023, so two years now. I've been tracking the top cybersecurity stocks because I called that day as the bottom of the market, the crash that had started in cyber stocks a year and a half before, in November. So November was the high for all these stocks. Only CrowdStrike, I think, has made it back to that high, and since January 6th of 2023, the stocks have been climbing back up to the point of look at how much In two years.
Speaker 2:Crowdstrike's up 242% and CyberArk, number two at 162%, which is surprising. It's a much smaller company, only worth the market cap of $15 billion today, and Palo Alto, which is the biggest by market cap, is up 128% from its down. So they've got a ways to go before. It feels like. You know you lost your money if you were buying way back in January of 2023. But you know Palo Alto is coming up on dipping below that $100 billion market cap again. Right, it's the only cybersecurity company that's worth that much and it dipped below after the disastrous you know announcement that they're moving to platformization. Last year it went way down, recovered all this year trying to make up for that just blunder.
Speaker 1:Heavy PR and marketing, probably pumping millions of dollars into that.
Speaker 2:I've seen the commercials very pretty convincing and all the money they save by not going to rsa but showing up at in san francisco and buying out a hotel at the same time smart that is brilliant.
Speaker 1:By the way, we can talk about that on a different episode, but I've written about it.
Speaker 2:I think think it's horrible.
Speaker 1:For the industry or horrible for Palo Alto.
Speaker 2:Horrible for the industry and just bad faith from Palo Alto. They're not a scrappy little startup that gets to say ew, rsa is extorting money from us and won't let us use the hotels, blah, blah. So we're going to punish them by not showing up. They're the biggest vendor in the space. Therefore, they represent the entire space and they should support the annual get-together of the entire industry in one place. They should be supporting that.
Speaker 1:Fair enough, fair enough.
Speaker 2:Yeah, and they shouldn't leech off of it. If they do decide to boycott it, they should just not send anybody there. But no, to show up and say you know what? All those people that RSA got there in the first place, let's entice them into our hotel and wow them yeah.
Speaker 1:In other words, don't be a dick about it. Exactly yeah, they didn't have to be yeah, okay, gotcha Checkpoint. Did didn't have to. They didn't have to be yeah, okay, gotcha Checkpoint did this in 2003,.
Speaker 2:I think you know. Gil Schwedt, who's notoriously cheap, said this is a waste of our time and money. We're the leader, we're not going to go, and they were back in three years. They were back and they're still there.
Speaker 1:Hmm, hmm. They took their ball, went home and realized that it's no fun playing by themselves, right?
Speaker 2:Exactly, they missed all the fun.
Speaker 1:Yeah, yeah, all right. So if we're looking at the CrowdStrikes, the CyberArgs, the Palo Altos, fortinet, zscaler, varonis, sentinelone Checkpoint, et cetera, et cetera, your thesis is basically that there's no reason to panic. If you bought at the right time you bought back in January especially you don't have any reason to panic. You might be a victim of the dip, but it's not erasing gains in the way that a lot of the media is probably making it out to be, at least in the larger tech sector when we get to cybersecurity, the cybersecurity sector. Not a whole lot of erasure of profits here.
Speaker 2:And it will survive better than a Nike right.
Speaker 1:So Nike Right Retail is screwed Right.
Speaker 2:Retail is screwed. Yeah, retail is screwed. Nike employs 450,000 people in China making shoes yeah, so they're totally screwed.
Speaker 1:They're screwed at least for a couple of years, or at least a year or two. I mean, I'm not a prognosticator. I suck at telling the future. I don't even know what's going to happen tomorrow, but I mean that's going to be really tough, tough. It's going to take time for companies to move back to the us to hire all these people and I mean, even if it does happen, it's going to be a very slow rollout yep, yep.
Speaker 2:First we've got to have the whole phase of uh uh smuggling industry growing up so we gotta we gotta watch all that and the crime that goes around it.
Speaker 1:Oh, yeah, wow, this thing might be yeah, might be bigger than we even anticipated. All right, so what other movements are we seeing in cybersecurity? Do you have any good news that may have nothing to do with the tariffs whatsoever. What do you got?
Speaker 2:Yeah, so it's my perception. I've only been digging into this for a couple weeks, but it's my perception and it feels like the entire cybersecurity industry is for sale right now. So if you're a private equity or a strategic buyer, now's your chance, because there are funded companies that are selling for less than the amount put into them, and this would be a time to snap up some high potential cybersecurity companies.
Speaker 1:Are we talking about pre-IPO companies? Yeah, we're talking small pre-IPO companies.
Speaker 2:Yeah, yeah, yeah, we're talking small.
Speaker 2:The entire. You know, last year there were 351 acquisitions of cybersecurity companies. Only a few of them were at that level of. There were no IPOs, but there were plenty of public companies taken private by Tomo Bravo and the rest, yeah. But most of those 351 deals were probably close to the average of tech deals, which was 47 million for each one. So most of the companies you know that we research and talk about and see on LinkedIn, et cetera, are in that range, right, 50 to 500 people and, you know, other than the unicorns, most of them are for sale.
Speaker 1:Very cool. So how would one go about buying one of these companies or at least getting their foot in the door? Because let's say, I've got, you know, $300,000, $400,000 cash on hand and I'm working for an attractive deal. Where do I go? Is there a platform that's this? Acting as a broker, do I have to know somebody like whose leg do I have to hump to get one of these deals?
Speaker 2:Well, at that level you're talking about um going to acquirecom and there are plenty of SAS companies for sale there that you buy for that much. That would be a. You know you'd have to be hands-on. I think You'd have to have the technical chops to manage whatever it is that you just bought. Not a lot of them are cybersecurity companies, but some are, and you'd want to buy one that had revenue right, that had got up to whatever $20,000 a month in monthly recurring revenue. But if just a few million more or you pool your $300K with a bunch of other people and get up to having $3 million available, then you can start buying some pretty serious cybersecurity products. It's pretty cool out there.
Speaker 1:So if I wanted to do a little bit of recon not the purchase itself, but I wanted to do a little bit of research could I do that with IT Harvest?
Speaker 2:Yes, I'm glad you asked. Turns out that's exactly what our platform is good for. We do have investment banks doing just that In recent weeks. We've decided that we should be doing that, we've got the data and everybody else is just I don't know what they're doing. Uh, putting up a sign saying come to us if you want to sell your company? Um, that's what the investment banks do, um, but you know, all you have to do is start talking to people, um, and our advantage is you know, we know everybody. You know everybody in the industry, so we do know, everybody we know everybody in the industry.
Speaker 1:You do know everybody, you know everything that's popping up. Everybody is hiding in the nooks and the crannies, those companies that you've never heard about, in places that you've never seen. Exactly right, what are some of the data points that we should be looking for or looking at? There are some indicators to help us make these kinds of decisions on what companies that you might be potentially looking to talk to.
Speaker 2:Yeah, great question. So the approach I take is I look for unfunded companies as a start. I think there's 1,700 of them, so those are bootstrap, so they're not going to have investors who are trying to get their money out of it or anything like that. I look for their age. I want them to be, you know, 10 to 15 years old, the companies thinking that the founders might be getting tired of you know the daily grind and willing to sell or join a bigger company strategically and move on from there. And then I look for flat or steadily growing headcount. So if they're flat, you know, for two or three years, it means they're making money at the two or three at that level they're at, or else you know they'd be laying people off so they could make money. And if they're growing slightly, it means not only are they making money but they're making more money every year. So just by tracking headcount you can see that right away in the charts. So that's what I look for when I'm hunting.
Speaker 1:I know of one such company not the former but the latter where they laid people off, but it's not because the result wasn't a decrease in profit. It may be a decrease, a slight decrease, in revenue, but their profit margin went up significantly because, of course, they have less overhead, because they found a way to leverage the resources that they had in order to increase production and to reach sectors that are pretty large, because, you know, I don't want to give too much away. You know, shout out to this person. If you know who I'm, if you're listening to this, you know who you are uh, the ceo over there. But it was a pretty smart move for them and, you know, not in large public circles, but privately he's pretty happy about and sort of short of boasting that his profit margins are up.
Speaker 2:If you show profit margins that are growing, then you should be talking to private equity, because private equity, you know, sometimes they have domain expertise but they really have financial expertise. They can turn, you know, basically your profit margins and your total profits into a number that you're worth and they can buy you for that number. But without any, you know, the due diligence is going to make sure you're not lying to them and that you have customers and you have technology and all the rest. And you have customers and you have technology and all the rest. But not as difficult when the investment thesis is if only we acquired them, cut their costs, laid off 20% of the people, then it'd be profitable, then we can fund the debt we need to make the deal happen in the first place.
Speaker 2:If you got profits, you're an easy sale to a private equity company. If you don't have profit but you have growth, then you may be an easy sale to a technology company, a strategic buyer. So maybe it's CrowdStrike or Palo Alto that can see your growth and see the impact and the penetration of the market that you made. You're going to bring them new customers. Bring them new customers. You know Palo Alto's. You know if Palo Alto really believes in what they're doing as far as platformization, then all they need is more customers. They'll take every customer of a $20,000 solution and they'll sell them all the rest of the Palo Alto stuff for a million dollars. That's the model, even though I think it's crazy. It doesn't work, but that's what they're thinking.
Speaker 1:So there'll be strategic buyers of companies like that, yeah let's say I'm making an assumption that since we talked about the whole Israel thing, I'm not going to beat that dead horse anymore, wrote an entire research paper on it which I can make available to anybody. Just hit me up on LinkedIn, shoot me an email. Not going to go into detail, but let's assume and you can correct me if my assumption is right or not that the Israel, the Israeli market, cybersecurity company market is somewhat inflated. Because if everybody's flocking to Israel, then as soon as there's a startup there, I mean you want to scoop them up Because chances are, the talent pool is going to be great. They're going to have X you know IDF unit 8200 folks coming from there. So they've got cybersecurity and intelligence and code breaking and all this stuff baked into their DNA.
Speaker 1:So you want to scoop up those teams. Right, whether they're making money or not, you're probably going to scoop them up, which, in my view, makes them a little bit inflated. So juxtapose that against a different market that might be equally as prepared but not as well known. Is there some region in the world where there's a market for companies that may not be as well known as the israeli cyber security companies, but they might be pumping out some uh small startups that might be worth something yeah, korea, korea's um, early, early stages, um, but they are several years ago they started reaching out to Israel and trying to create partnerships and incubators and all the rest.
Speaker 2:So they want to. You know, it's like a stated goal is to mimic the Israeli miracle in cybersecurity. And you know, of course, fantastic companies, fantastic technology, really really smart people who you know, let's face it are not very good at doing the next step in the Israeli miracle, which is landing in the United States and selling here. That's really difficult for a Korean company. So it'd make a lot of sense to acquire a Korean company. It would make a lot of sense to invest in Korean companies if you can open doors for them here in the US.
Speaker 1:Yeah, yeah. Otherwise there are other options. To set up shop or at least some sort of liaison in K-Town. Yeah, maybe not a bad idea, but I don't think that that's happening anytime soon.
Speaker 2:Just hire people, man yeah.
Speaker 1:You know, they do have also a strategic advantage that they would share with Israel, which is they require everyone to join the military after high school and there's mandatory military service. If the military and the government were to follow suit and they were to adopt some of the strategies that Israel had kind of laid out and done there, then they would bake cybersecurity into the training of the military, which to me seems like a pretty logical dot to connect, but maybe they're a few years away from that.
Speaker 2:Yeah, because Korea's got one problem. North Korea, yeah, small problem. And North Korea is really good at the offensive side of security. They have to move into a hotel in China in order to execute attacks because they don't have reliable internet. Window hotel in China in order to execute attacks because they don't have reliable internet. But it's unlike Israel, where not only is Israel under constant attack from all sides, right, every single person in the Middle East wants them to die, so they're very, very defensive, to the point where they also invest a lot in offensive security.
Speaker 1:Right preemptive strikes.
Speaker 2:Yep, they have hands-on hacking experience when they come out of the military, and usually I've talked to quite a few founders who saw what they were doing and then came up with a product to stop them from doing it, and that's how they got started.
Speaker 1:Yeah, so Israel is in itself a red team, blue team incubator, so they're attacking and defending, whereas korea they're defending most of the time. I don't think they're doing a lot of attacking so between the north and the south, because they're separate the red team and the blue team uh is, they are incubated and isolated from the rest of the world. So they're not attacking and defending from external forces, they're just attacking and defending from themselves. If you really think of the North and the South as somewhat obviously not the same country, some may disagree. Kim Jong-un, my little rocket man, might disagree, but maybe that's preventing them from going global.
Speaker 2:That might have to do with it yeah, I don't know.
Speaker 1:What do I know? Um, okay, so is there anything that you can show in it harvest? At least, just give me an example of what would I be looking for. What would I look for when I'm searching or doing my research for, you know, one of these potential acquisitions, and just kind of walk me through some of the numbers.
Speaker 2:Okay um, let's look at I'm pretty sure this is what I want to look at armor blocks. No, they've been archived because cisco acquired them. So it's worth looking at headcount if we have the data. If you ever see this kind of headcount graph, it's because the company's been acquired right and, believe it or not, after the company's acquired, there are always a whole bunch of stragglers that you know they're employed by Cisco, but they don't change their LinkedIn profiles, and that's typical insecurity, because but they don't change their LinkedIn profiles, and that's typical insecurity because techies don't care about that stuff. But who else can we look at?
Speaker 1:So, just to be clear, what we're looking at here is a drop off of the employees or the headcount After.
Speaker 2:Cisco acquired them.
Speaker 1:That's right. When Cisco acquired them, the headcount dropped off. Okay, okay.
Speaker 2:Yeah, because on that day everybody is excited and they update their employment to Cisco.
Speaker 1:Yeah, now I work at Cisco.
Speaker 2:Exactly, exactly. If you look at Mandiant who, no matter how many times I talk to Google, they say you know there is no Mandiant anymore, it's Google Cloud Security. Yeah, but you know there are 1,400 people who claim employment at Mandiant still after all this time.
Speaker 1:So they have the opposite effect. Where? Why would that? I don't know.
Speaker 2:I do not know, I don't know. I do not know. You would think you would want to be a former Googler, because that implies that if you're a tech person, it implies you're making half a million a year. So you could demand that you're a former Fang. Now you do a startup. So let's just do this. We are going to look for companies with between 200 and 500 people who have grown let's say, 2% so far this year so this is in 2025 and have taken in at most $2 million, okay, $2 million, okay. So if you were a buyer, you could buy one of these companies for a multiple of their profits. You'd have to talk to them and figure out what that is. We're going to do the growth. So my breadcrumbs up here Greater than 200, less than 500. Year-to-date growth there are 104 companies that match that.
Speaker 1:That fit that criteria. Okay, Fit that criteria.
Speaker 2:So you can start going through the growth All these companies are growing.
Speaker 1:They're all hiring. Go shopping, yeah go shop.
Speaker 2:These are great companies.
Speaker 1:We're window shopping right now. That's right.
Speaker 2:And, if we can do, a total funding of $2 million on top of that. So now there's 31. So out of those 108, most of them got funding right, but these guys don't have very much funding. So you might want to look at 42 Gears and API, security Group, ib and Threat Intelligence right is killing it and headquartered in Singapore.
Speaker 1:Can we look at Group IB and see what their headcount change was year over year?
Speaker 2:That should be interesting, because you know they kind of pulled a fast one on Putin and you know the company kind of pulled a fast one on Putin and the company kind of disappeared and the founder escaped to the West and then he showed up in Singapore and all of a sudden the company's back, so maybe it'll be, yeah, kind of interesting what's going on there. He's doing a little dance. Yeah, exactly, this is when they were disappearing. All of a sudden they're back. They're growing. I don't know what happened here. This is only a drop of 50 people During the tumultuous 23 to 24, they were flat and growing. It's a great, great sign. Now they just took a big jump. Now that could be either they've had a funding round to jump to. That's almost. Yeah, that's 110 people.
Speaker 1:So they went up by almost 50%. So somebody didn't buy the dip.
Speaker 2:Right, that's right, and this could be that they acquired a team or several teams or did an acquisitions, but yeah, they didn't. They really haven't had very much funding at all for a while.
Speaker 1:Yeah, yeah, very cool stuff. Check out IT Harvest, you might do some window shopping and you might find a new pair of shoes that you like.
Speaker 2:The trigger is when you hire a new associate for your private equity firm who's got all the financial background you need and the personality, everything you hired them for, but they don't know anything about cybersecurity. You give them this one tool and they have accumulated knowledge that myself and the whole team has put into it for four years.
Speaker 1:Yeah, so you become an industry analyst overnight, pretty much.
Speaker 2:Yep, totally yeah.
Speaker 1:All right Industry analyst in a box. Richard Steenan, thanks for dropping by, my friend, it's always great to talk to you and I know you've got better things to do today. On a Friday, if you're listening to this, this will be on a Monday, but have a great weekend. And how can people find you if they want to follow you?
Speaker 2:Yeah, check me out on LinkedIn.
Speaker 1:That's the easiest way People contact me every day on LinkedIn and I'm always happy to talk All right and listen to Cybernomics, the full radio broadcast anywhere. You can find your podcasts every Wednesday morning, 7 am, bright and early. Thanks for listening. We'll see you in the next one. Bye.