9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk (Part 4)

Sramana: How did it make you feel to watch your IPS drop to last in the marketplace when you were at Juniper?

Nir Zuk: I did not like Juniper at all. The first day after they acquired NetScreen they came and explained to us that we did not know what we were doing and that they needed to teach us how to do sales, marketing, and engineering. Juniper is a great company, but they really screwed up that acquisition.

They acquired NetScreen in 2004, and I left in February 2005. Before I left I tried to get them to start a project to develop a new type of security device. Juniper was in the process of taking NetScreen technology and converting it into Juniper products under the Juniper operating system. I tried to make that case that if they were going to do such a large engineering effort, they should build a new firewall because it did not make sense trying to do the same thing that had been done for the past ten years. For various reasons they chose not to pursue a new firewall.

Sramana: Did you make that recommendation because you saw a new opportunity?

Nir Zuk: Pretty much the entire world was using technology that we invented at Check Point in 1994. It just did not make sense to keep using ten-year-old technology. Hackers did not sleep for ten straight years, although anti-virus vendors did. It got to the point that firewalls were not really doing anything, and everybody knew that firewalls were not doing anything. Despite that, 80% of the network security budget was spent on firewalls and 20% of the budget was spent on anti-virus products that stay behind the firewall.

As an entrepreneur, I recognized that there was an opportunity. I wanted to build something that would cover 100% of the market. I asked Juniper for $10 million and 25 people to build a new firewall based on the Juniper operating system. I did not even hear an answer back, so I left. I raised $9.4 million from Greylock and Sequoia. We hired 20 people, some of whom were people that I wanted to work on the project at Juniper.

Sramana: When you went to raise money, was it purely concept financing?

Nir Zuk: More or less. I had five PowerPoint slides, and the next day we had a term sheet. Of course I had connections and background, and I was dealing with top-tier VCs. When I look at VCs, I prefer to work with ones who have been entrepreneurs. Those MBA types do not always understand reality.

Sramana: How long did it take you to get the product out?

Nir Zuk: We started working in January 2006. It took us one year and three months to get our beta version out. We knew we wanted to build a new type of firewall, but we were still missing the go to market strategy. We did not know how to go to companies that had invested tons of money in firewalls and convince them that this little startup from Silicon Valley had a product that was significantly better. That was a huge barrier.

We then devised a go to market strategy which was to build a device that sits behind the firewall that customers would find compelling enough to purchase, and later on we would go ahead and consume the firewall. Some customers bought it as a firewall, but most did not.

Sramana: What did your new product do if it did not replace the firewall?

Nir Zuk: The fact is firewalls could not see the traffic. They looked for IP addresses and port numbers. A lot of applications were built in such a way that they would bypass the firewall by going through port 80 or 443. The firewall was not able to differentiate.

This segment is part 4 in the series : 9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk
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