VMware Vet's Firm Leads $65M Round In IoT Security Startup Armis

IoT security startup Armis raises a $65 million funding round led by former VMware exec Carl Eschenbach's VC firm as the vendor's channel-driven sales grow at a fast clip. 'They are solving a problem that people don't even realize they have,' one partner says.

Internet of Things security startup Armis said it hopes to eventually go public after raising a fresh $65 million in capital from investors as channel-driven sales grow at a fast clip.

The comments about a potential IPO were made by Armis CEO and co-founder Yevgeny Dibrov before the company announced on Thursday its Series C funding round, which was led by venture capital heavyweight Sequoia Capital, bringing the startup's total funding to $112 million.

"The goal here is to build a large business," Dibrov told CRN in an interview Tuesday. "We have the opportunity. We have the timing. We have the right resources. And it's all about execution. This is the goal of the company, and we are here for the long run."

Sequoia's investment was led by partner Carl Eschenbach, VMware's former president and COO, who is joining the company's board of directors.

[Related: 2019 Internet Of Things 50: IoT’s Next Chapter]

"Armis offers companies unprecedented visibility across managed and unmanaged devices during a time when the number of IoT devices is exploding," he said in a statement. "As every industry and market segment faces the issue of identifying and securing these devices, Armis is providing the best solution with their easy to install, agent-less platform."

Dibrov said most of the Palo Alto, Calif.-based company's deals — which include multiple multi-million-dollar contracts with enterprises — come through channel partners, which include Presidio, Optiv and 38 others. While Dibrov declined to disclose annual revenue, he said the company's sales grew 700 percent from the beginning of 2018 to the end of that year.

Armis, which was named in CRN's 2019 IoT 50 list, claims to have more than 25 of Fortune 100 companies as customers. The company's roughly 50 customers include Sysco Foods, Allergan and Samsung's U.S. research and development organization.

What's driving the company's fast revenue growth is a "huge explosion of connected devices" across multiple verticals that is happening as the result of digital transformation initiatives, according to Dibrov. While these IoT devices are expected to create new value for businesses, they bring in new security risks that most, if not all business environments are not properly equipped to handle.

That's one of the major reasons Jim Vanderzon, president of Arlington, Va.-based value-added reseller Sun Management, decided to partner with Armis following the suggestion of a client.

"They are solving a problem that people don't even realize they have," he said.

These problems have resulted in real attacks, such as a new form of ransomware known as LockerGoga bringing the global operations of Norsk Hydro to a halt, costing the Norwegian aluminum and energy company as much as $40 million so far. A few months ago, researchers discovered new botnets based on the Mirai virus are penetrating video conferencing equipment made by Polycom.

Armis addresses these unmanaged IoT devices — which Gartner predicts will reach 25 billion by 2021 — with an agentless security software platform that lets enterprises gain visibility and control of these devices, which include everything from smartphones and tablets to printers and smart cameras.

Dibrov said channel partners take a 20 percent cut on Armis deals, which are based on an annual subscription. There are also opportunities to bring in services revenue on top of that, he added.

Vanderzon of Sun Management said while his company doesn't specifically charge for engineering services, which involve integrating Armis with a business' firewall and network access control, the value of such work could reach hundreds of thousands of dollars on top of multi-million-dollar deal.

While the VAR hasn't closed any Armis deals yet, Sun Management is currently working on two proof-of-value projects that could result in contracts worth $4 million and $500,000, respectively. The VAR's current prospects include a client that wants to monitor medical devices, a large Department of Defense entity that wants to identify devices at military bases and an entertainment facility operator.

"This is very early stage, but we're pretty excited about, unfortunately, the security risks that IoT devices can cause," said Vanderzon, whose company brings in around $50 million in annual revenue.

Michael Parker, Armis' vice president of marketing, said the company's largest segments right now are healthcare, operational technology, finance, retail and digital workplaces. But he said Armis, which is addressing a $30 billion market, is currently seeing engagements across every industry.

"We are literally deployed or talking to every vertical," he said. "So that includes agriculture, hospitality, transportation. We are going through what I call the 'great awakening' right now."

Parker said one of Armis' major strengths is that it works across IT and OT environments.

"The organizations in healthcare and manufacturing want one solution for both sides the house, right?" he said. "You don't buy a firewall just for your OT or your CAT scans or blood infusion pumps and another firewall for the other side. They want to buy one security solution that works on both sides of the house, and Armis does that, and it's one of the reasons we're getting so much interest in every vertical."

With the new funding round, Armis plans to invest in demand generation and partner enablement as part of its expansion plans, which also includes new spending for engineering.

"The focus right now is to grow fast, to continue to get more and more customers, and more and more great partnerships that drive customers," Dibrov said.