Key Takeaways:
- ServiceNow’s acquisition of Armis marks a significant entry into the cybersecurity market, with a focus on integrating asset management and risk management into a single platform.
- The acquisition is expected to enable expansion in the federal market, with Armis’ capabilities providing full visibility into assets not managed by traditional IT systems.
- Merlin Ventures, a major player in the private and federal markets, is leading the charge in cybersecurity investments, with a focus on helping Israeli startups access the U.S. federal market.
- The U.S. federal market is a significant opportunity for Israeli startups, with a value of around $300 billion, but accessing it requires certifications such as FedRAMP.
- The cybersecurity market is experiencing a surge in large Seed rounds at lofty valuations, with some companies raising capital at multiples of 100 or even 200 times revenue.
Introduction to ServiceNow’s Acquisition of Armis
The acquisition of Armis by ServiceNow marks a clear entry by the enterprise software giant into the cybersecurity market. According to Shay Michel, managing partner at Merlin Ventures, this move is a consistent strategic decision, rather than a one-off, and reflects a desire to concentrate security, asset management, and risk management within a single, integrated platform. The acquisition is expected to enable ServiceNow to provide full visibility into assets that are not managed by traditional IT systems, critical infrastructure, operational systems, industrial equipment, and IoT sensors. This will allow data to flow directly into the configuration management database (CMDB) and trigger response processes as part of the organization’s operational routine.
Merlin Ventures’ Role in the Cybersecurity Market
Merlin Ventures is a significant player in the private and federal markets, and has been working with ServiceNow for several years. Michel notes that the company is one of Merlin’s largest clients, and that the connection is expected to enable meaningful expansion in the federal market. Merlin has a strong presence in Israel, and has established a platform called CGC that helps Israeli companies access the U.S. federal market. The platform compresses the timeline for accessing the federal market from years to months, and has helped Israeli companies generate over $100 million in revenue over the past year.
The Importance of the U.S. Federal Market
The U.S. federal market is a significant opportunity for Israeli startups, with a value of around $300 billion. However, accessing this market requires certifications such as FedRAMP, a process that can take years and cost millions of dollars. Merlin’s CGC platform helps to simplify this process, and provides Israeli companies with a fast track to the largest contracts in Washington. Michel emphasizes the importance of the U.S. federal market for young Israeli startups, noting that it is where the real money is, and that many Israeli entrepreneurs have previously ignored it due to the difficulty of accessing it.
The Surge in Large Seed Rounds
The cybersecurity market is experiencing a surge in large Seed rounds at lofty valuations, with some companies raising capital at multiples of 100 or even 200 times revenue. Michel is cautious about this trend, noting that it is a dangerous dynamic, and that some companies are raising capital at valuations that are higher than public cybersecurity companies generating hundreds of millions of dollars in annual revenue. He expects that the market will be forced to reset within two or three years, and that the funds that invest simply to "have a seat at the table" are likely to be the most exposed.
The Role of AI in Cybersecurity
AI is becoming central to the U.S. federal agenda, with the government deeply concerned about AI-driven attacks and future quantum threats. Michel notes that cybersecurity companies that make AI safe for organizational use will be the ones that unlock widespread adoption. He draws a historical parallel with the cloud transition between 2012 and 2017, when many organizations hesitated due to security concerns, and cyber companies enabled that transition. He expects that the same pattern will be seen with AI today, with cybersecurity companies playing a key role in enabling the safe deployment of AI at scale.
Advice to Israeli Founders
Michel’s advice to Israeli founders just starting out is direct: "Don’t just build technology, build go-to-market capabilities. Companies that aren’t in the market don’t learn how to improve. Today, you can’t wait until a later stage to think about sales. You need to be aiming for tens of millions of dollars in revenue from the very beginning." He emphasizes the importance of building a strong go-to-market strategy, and notes that Merlin Ventures is well-placed to help Israeli startups access the U.S. federal market and achieve significant revenue growth.