9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk (Part 7)

Sramana: Today, does Palo Alto Networks still sell just one product?

Nir Zuk: Yes, although we have added a lot of features to it. We have mid-range and low-end platforms.

Sramana: How much money have you had to raise to get this company running?

Nir Zuk: We have burned a total of $49 million to get to a cash-flow positive position. That is unheard of for a systems company, and we are doing it all in the United States. We raised more money than we needed. Our first round was $9.4 million, which got us through our prototype and to shipping of the first product. We then raised $18.6 million, which was easier to do because we had good customer feedback by then. The second round took us through our second year, followed by a third round in which we raised $26 million. When we closed that round the market started going south. The round was oversubscribed, so our investors told us to take an additional $10 million on that round just in case. In total, we raised $65 million and have used only $50 million of it.

Sramana: Now that your company is generating cash, how do you view your available market?

Nir Zuk: I think we will reach the point where we are doing $1 billion in sales. Right now, we have 2 percent of the firewall market. About 70 percent of our business is replacing firewalls and the other 30 percent of our business is replacing other devices in the network that supplemented firewalls and are no longer needed. Typically, our customers save 60–80 percent of their network security budget over three years. We offer customers not only innovation, but cost savings. You can’t build a company on cost savings alone in our market.

Sramana: What are your plans for the future? I don’t know that you can get to a billion dollars in sales off one product.

Nir Zuk: Not one product, but we can get there in one market. My goal is to get there in less than five years. Our plan is to go public, but we have to do it at the right time. The right time to go public will involve many factors. There is a board to consider. The market needs to be ready. I don’t want to go to public too early and become an acquisition target.

Sramana: Your are fortunate because your company has not been around a long time. You can take another three or four years because your investors are not itching yet.

Nir Zuk: That is true. The way companies are being valued in public markets depends on revenue. Doubling sales does not always double the value of the company because of other factors. A company with a billion dollars in revenue will be treated differently. Going public is a milestone, not a target for me. The main reason to go public is to have currency to grow via acquisition and other means.

Sramana: What percentage of the company do you still own?

Nir Zuk: Between 5 and 10 percent. I think that is the right level. It was very important to me that our early employees and engineers get compensated well which meant I needed to give up equity. I am fine with that. I believe that when you spread the wealth it pays back.

One thing we do not allow at Palo Alto Networks is egos. There are companies that hired the best engineers in the Valley and later found out they have egos the size of the moon. At Palo Alto Networks, everybody does everything. When I hear somebody say “this is not my job” I will take them at their work. We need people who do everything. We don’t hire people because of their political skills.

Sramana: Human beings are inherently political and social.

Nir Zuk: There is no way to avoid it, but there is a way to delay it and mitigate it. I see my role as a founder of the company to delay it as much as possible. I don’t allow people to play politics. Small teams help, but they are not always possible. There have been a few politicians who had to leave the company. Right now, it is manageable.

Sramana: Good luck, this is an excellent story!

This segment is part 7 in the series : 9.4M Dollars In Concept Financing To 100M In Bookings: Palo Alto Networks Founder Nir Zuk
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