KnowBe4 Files For First Cybersecurity Vendor IPO Of 2021

Security awareness training vendor KnowBe4 revealed surging sales, diminishing losses and a rapidly growing channel program, with partners bringing in 37.4 percent of the company’s 2020 revenue.

KnowBe4 became the first cybersecurity company to pursue an initial public offering (IPO) this year, revealing diminishing losses and a rapidly growing channel program.

The Clearwater, Fla.-based security awareness training vendor said MSPs and channel partners brought in 37.4 percent of KnowBe4’s revenue in 2020, up from 32.3 percent of revenue in 2019 and just 20.4 percent of revenue in 2018. KnowBe4’s channel blitz has led to surging sales and more presence abroad as the simulated phishing platform provider looks to raise up to $100 million in a Nasdaq public offering.

“We utilize channel partners to efficiently increase the scale of our marketing and sales efforts and increase our market penetration to customers who we otherwise might not reach on our own,” the firm said in a filing with the Securities and Exchange Commission. “As our business becomes more mature, we believe the revenue contribution from channel partners and MSPs will continue to increase.”

[Related: KnowBe4 IPO Could Come Late 2020, Value Firm At Over $2B: Report]

KnowBe4 intends to use the net proceeds of its IPO for general corporate purposes, including working capital and capital expenditures, as well as a potential acquisition or investment in complementary technologies or businesses. The company plans to be listed under the ticker symbol KNBE.

The company’s filing comes just six months after Reuters reported KnowBe4 had engaged investment banks to help prepare an IPO that could value the company at more than $2 billion. KnowBe4 notched a $1 billion valuation in June 2019 when private equity giant KKR invested $300 million into the company.

Although KnowBe4 is the first cybersecurity vendor IPO of 2021, several other security firms plan to go public by other means, with secure access vendor Appgate merging with a publicly-traded shell company at a $1 billion valuation and risk analytics platform QOMPLX going public via a SPAC at a $1.4 billion valuation. In addition, cybersecurity SPAC NightDragon Acquisition Corp. raised $300 million in an IPO.

KnowBe4 has experienced massive growth in recent years, according to its 156-page filing with the SEC late Friday, with sales jumping to $174.9 million in 2020, up 45 percent from $120.6 million in 2019 and 145.3 percent from $71.3 million in 2018. The company’s net loss improved dramatically to $2.4 million in 2020, or $2.31 per share, much better than its net loss of $124.3 million, or $76.51 per share, in 2019.

“We expect our operating expenses to increase significantly over the next several years, as we continue to hire additional personnel, particularly in sales and marketing, [and] expand our operations and infrastructure, both domestically and internationally,” the company said. “If we fail to increase our revenue to offset the increases in our operating expenses, we may not achieve or sustain profitability.”

International sales accounted for 11.9 percent of KnowBe4’s revenue in 2020, up from 9.7 percent in 2019 and just 6 percent in 2018, with MSPs and channel partnerships driving a substantial portion of that revenue. KnowBe4 said there’s a significant opportunity to keep growing its business abroad through further development of its international channel partnerships.

KnowBe4 additionally plans to expand both its direct inside sales force and its channel partnerships, with a focus on increasing sales to large organizations. The company said it has historically sold its products to both enterprise and SMB customers.

“We have a deeply integrated ecosystem of channel partners, who significantly expand our market reach and ability to expand our sales efforts,” the company said. “As a result of our ongoing MSP and channel development efforts, our partners have increasingly driven net new business, and in particular, in our international markets.”

KnowBe4 was founded in 2010, and has raised $393.4 million in five rounds of funding, Crunchbase said. The company employed 1,014 people at the end of 2020, up 20.7 percent from 840 employees at the end of 2019 and up 63.3 percent from 621 employees at the end of 2018. KnowBe4 agreed on Feb. 12 to buy security and privacy training vendor MediaPro for between $30 million and $40 million.

The company had nearly 37,000 customers across virtually all industries and geographies at the end of 2020, with no single direct customer representing more than 1 percent of KnowBe4’s revenue. That’s up 23 percent from just over 30,000 customers at the end of 2019 and up 64.4 percent from more than 22,500 customers at the end of 2018, according to the company.

KnowBe4 Founder and CEO Stu Sjouwerman (pictured above) owns 7.9 percent of the company before the IPO, according to the S-1 filing, while Chief Hacking Officer Kevin Mitnick also holds a 7.9 percent stake in the company and Co-President and CFO Krish Venkataraman owns 1 percent of KnowBe4. Mitnick, who spent five years in prison in the 1990s for wire fraud and computer crimes, resigned from KnowBe4’s board Friday.

Institutional investors hold a nearly 75 percent stake in the company, with funds affiliated with Elephant Partners owning 28.8 percent, KKR Knowledge Investors owning 19.8 percent, entities affiliated with Vista Equity Partners owning 9.2 percent, funds affiliated with Goldman Sachs owning 8.9 percent, and a fund affiliated with Tiger Global Management owning 7.3 percent.

Elephant was the lead investor in the company’s $8 million Series A round in February 2016, KKR was a lead investor in the company’s $350 million Series C round in March 2019 and June 2019, and Goldman Sachs was a lead investor in the company’s $30 million Series B round in October 2017.