Tech company seeks $100 million with IPO

Clearwater tech and cybersecurity entrepreneur Stu Sjouwerman is about to put his counterintuitive ‘failure-isn’t-an-option’ ethos to the ultimate test: the stock market.

The founder and CEO of KnowBe4, a simulated phishing platform that did $175 million in revenue in 2020, Sjouwerman doesn’t consider failure a learning tool — eschewing advice many other successful entrepreneurs espouse. “‘Break things, fail fast and fail often’ is not something I subscribe to,” Sjouwerman said in May 2019, when he was named a Business Observer Top Entrepreneur. “If you think about it for a moment, it implies you don’t know what you are doing — that you don’t have a good plan to begin with. It says that if you don’t make it, you pivot, but that means you haven’t done sufficient market research. If you know where you are going and execute on that, you will learn from your successes.”

With KnowBe4’s March 19 S-1 filing with the Securities and Exchange Commission that it intends to go public, Sjouwerman, 64, aims to keep both that theory and the company’s momentum rolling. Going public on the Nasdaq exchange, KnowBe4 officials hope to raise $100 million, documents show. A look at the 156-page document reveals multiple aspects of KnowBe4, which Sjouwerman founded in 2010 with help from computer security consultant and convicted computer hacker Kevin Mitnick. Highlights include:   

• Fast growth: Revenue is up 145.3% since 2018, from $71.3 million to $174.9 million. Going back further, to 2016 when it did $24.4 million, KnowBe4 is up 616.8%. The payroll is up, too, from 621 employees at the end of 2018 to 1,014 at the end of 2020 — a 63.3% increase. Included in the growth is the company’s unicorn designation, Wall Street and Silicon Valley speak for a firm with $1 billion valuation. It hit that mark in 2019, soon after private equity giant KKR invested about $300 million in the firm.

• Big losses: “We have incurred net losses in all annual periods since our inception,” KnowBe4 states in the filing, “and we expect we will continue to incur net losses for the foreseeable future.” The company posted net losses of $9.2 million, $124.3 million and $2.4 million in each of 2018, 2019 and 2020, respectively, SEC documents show. It also had an accumulated deficit of $161.3 million at the end of 2020.

Company culture: KnowBe4 has awarded every employee with a $100 bill when it hits its break-even mark for the month, among other quirky perks, so it puts a premium on employee morale. “We believe our corporate culture has been a contributor to our success, which we believe fosters innovation, teamwork, passion and focus on building and marketing our platform and products,” it states in the prospectus. “As we grow and develop the infrastructure of a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could harm our future success, including our ability to retain and recruit personnel.” KnowBe4 won a Glassdoor Employees’ Choice Award in February, recognizing it as a top place to work nationwide.

‘At KnowBe4 we simply do not use the word solution, because no security technology ever completely solves the cybersecurity problem.’ Stu Sjouwerman, KnowBe4

Market opportunity: Sjouwerman, in a letter to prospective shareholders, says that after 15 years in cybersecurity he got the idea for KnowBe4 when he realized “that despite the billions of dollars spent on security products, more often than not, it was the human letting the bad guys in.”

With that backdrop, using a subscription model and marketing to IT professionals and firms that handle IT for small businesses, KnowBe4 estimates it has a $15 billion market opportunity.  That includes international clients — its non-U.S. customer base increased from 6% of revenue to 11.9% from 2018 to 2010 — and cross-selling current customers, officials say in the prospectus.   

“Here’s the issue: organizations have been placing their faith — their spend — in the wrong thing,” Sjouwerman continues in the letter. “So, while the cybersecurity industry has been focused on the idea that better products will solve security problems, I started KnowBe4 to focus on the human. Our mission became enabling employees to make smarter security decisions, everyday… In fact, at KnowBe4 we simply do not use the word solution, because no security technology ever completely solves the cybersecurity problem. Our platform is designed to create real results, such as safe data handling, good password hygiene and, of course, reduced success rates of social engineering attack.”