Eric McAlpine: The New Physics of Cyber

Libby Botsford: Hello everybody, I'm Doug Merritt. Welcome back to the In Progress podcast. Because life is about continuous learning in progress, and nothing worth doing is ever fully done. I am so excited ⁓ to have Eric McAlpine as my guest today. ⁓ he ⁓ leads an amazing company called Momentum Cyber that you get to hear a lot about. And we're gonna cover some, I think, interesting topics, ⁓ what's going on in the industry and ⁓ that that you'll get insights that are very difficult to get from other folks. So welcome, Eric. I'm I'm really, really pleased to have you here. Yeah, thanks for having me, Doug. I've been looking forward to this. It's Friday, so this is the highlight of my week here ⁓ to talk to you. ⁓ you certainly have built multiple businesses that have seen tremendous progress and made progress in our industry. ⁓ I I love the the theme of your podcast. I I I love a lot of what Tony Robbins stands for in terms of how he really gets the best out of people and that passion that he drives, that really that discipline. And his he has a statement saying, you know, quote saying, What is the key? What what is happiness? Right. And and he says happiness is progress. Right. Is anybody ever happy because you get on the podium? Or are you happy because you made that progress towards the podium? The podium just means there's another podium, right? It doesn't mean anything. It's that progress. And so, ⁓ I you know, I just love the theme of your your ⁓ podcast. Well, thank you. Thank you. I'm glad it resonates. And that definitely like I actually brought the author of Chopwood Carry Water, Joshua Medcalf, ⁓ into the company for the past year and a half just to help people really, really focus on the the outcome is just an outcome. And we get so overfo over rotated on, you know, I'm gonna get on that podium or I'm gonna close this deal or whatever the heck could happen. I'm gonna get this great job. And it's all about the journey. And it's all about the daily, the enjoying the daily, which w by the way, I fight all the time because we're all outcome driven and we're type A and it's like I want that outcome. And so that that it's so much work to stay focused and present. And that outcome is so ephemeral. But when you look at the smiles on the young people's faces that work for us. It's because they just got something done that moved the needle on a project. Exactly. And you see that day in and day out. And when I just I I always preach to them. I mean, I most MA is a young person's business. I have no business to be in it anymore. Too many gray hairs, but most of the young women and men that work for me are in their mid twenties and mid thirties. And ⁓ and we talk about progress all the time. It's such such a great shaping up. The MA world is all about your trophies and your loose sites, right? Right. You say, you know what was behind that little piece of plastic? Yeah. H how many ten to twenty year overnight success stories are there, right? It's it's all about the work. That's right. ⁓ well to kick off this podcast, not everyone here might be as familiar with momentum cyber as they should be. ⁓ I'd love to go back and and ⁓ get your perspective on like there's I but we've both been around the investment banking world for a long time. That's obviously your profession. There's very few folks that are willing to be focused on a on a industry segment. It's risky, like what happens if that segment doesn't really materialize the way that you want. And you had such great foresight ⁓ when you found the company to to have that focus on what has been one of the hottest categories and I think in the world of AI is going to be beyond hot over the next five to ten years. So so how'd it go how'd it get going? How'd you get the insight and better to be lucky than good? ⁓ no I'll I I'll I'll tell you the the the background on this and and ⁓ could be framed a different way, Doug. Why did you leave Blackstone? Who leaves Blackstone? ⁓ The industry standard. Yeah. Yeah. Exactly. ⁓ and so the company was born on my fortieth birthday. And about six months prior to that, ⁓ I left Blackstone and I took a six month sabbatical and I really wanted to figure out. I was at a point mile, I was thirty nine years old, and I had, you know, made good money, not not enough to to retire on. By any stretch, right? But had done very well in a star culture at Blackstone. Promoted to managing director very early on, ⁓ did a lot of cool deals ⁓ with the team there. ⁓ was recognized by Mr. Schwartzman as one of the up-and-coming stars of the firm, put into a special program. I was featured in the 25th annual annual report, ⁓ you know, anniversary. And So why leave a post like that? Right. I mean, sort of seems like an outcome that everybody actually generally wants. Like I'm golden now. Exactly. Well my wife certainly questioned. And believe me, I I I I did at times too, because the entrepreneur's journey, especially in those first five years, is so extraordinarily difficult. And you question yourself. ⁓ we took a trip down to Costa Rica, my family and I, and I was ⁓ I was trying to have this father daughter moment with my daughter who at the time was ⁓ was a sophomore in high school. And that's a very impressionable time in a in a young woman's life. Very and you know, my career, she was the victim of my career, right? From from you know, zero to to to fourteen. And so we went down there and we started journaling. And she was journaling and I was journaling. We were doing this in quiet, you know, and we I started journaling about what I thought A next generation advisory firm would look like. And for some reason, my engineering brain turned on. I have two degrees in engineering. And I came up and I wrote down the equation for momentum, mass times velocity. And it's a vector. And then I came to this theory is like, how could we help companies get bigger and go faster? Progress, not think about the outcome, right? Because the outcome is just a derivative of doing the right things along the way. And so I try a called that life cycle advisory, thinking about the founder's journey from the beginning, understanding that. And so that's where I sort of rift on this idea of why momentum? Now why cyber? Right. If you think about probably one of the most complicated ecosystems out there, it has to be cybersecurity, right? You could look at ad tech or enterprise software, you know, ⁓ but but within if you really understand security, it's almost like a rainforest, right? There's so much life in there. But man, can you die in a minute if you don't know what you're doing? And here I am in the middle of a rainforest thinking about this idea of momentum and how do I get people to help them navigate this rainforest while getting bigger, while going faster, boom, momentum cyber. And so we At the time, this is twenty fourteen, the capital markets were relatively immature. Think of the market cap of your former company at what it was at that time versus what it was when Cisco purchased that. Yeah, you grew twelve X. You grew that company twelve X over the I and I left in twenty well, what the the high point I Ray Ram and I left is thirty five billion. So yeah, it had it had changed a lot. The market had changed a lot. That's right. and and and and when Cisco acquired ⁓ it wasn't the first time they tried, you know that. Yeah. I know that. Yeah. ⁓ and and so anyways, the the markets were much less mature. ⁓ my my first public deal in security when I was associate at Citigroup, what it was the first billion dollar deal. Do you know the first billion dollar MA deal in security? No. No, you're testing my knowledge. I wonder who it was. What year was it? ⁓ It was ⁓ two thousand and six. Okay. So heavy in the perimeter defense and prevention mode. ⁓ yeah. So who was it? What was the biggest deal at that time? RSA sale to EMC. I advised the cover bid, the other bidder in the proxy, in the S4. And ⁓ and so that was my first time I had to go to a fairness committee at a bulge bracket bank. I was an associate. Normally that's a managing director's responsibility. He was this is Stu Goldstein. He now runs the tech group at MOLIS and Stu just threw me to the wolves and said, I'm negotiating the deal. You need to get this through committee. Here's what we need. Right. And I did it. And I thought, Wow, this is amazing. You know, this is gonna be the largest deal ever in security. Two point one billion dollars, right? ⁓ and we ended up coming in second. And I just realized how hard ⁓ and A was back then as a young associate. It's not very easy. ⁓ then You know, there was that's how immature the capital markets were, right? When I sold Founstone, I was now when I say I did it, I didn't do it. I was the associate on the deal. When we sold Founstone to McAfee, do you know the founders of ⁓ of Founstone? George Kurtz and ⁓ and Stuart McClure. Yeah. I did not know working on that deal in two thousand and four that I was in the presence of greatness. Right. It was such a small cottage industry back then. But having a front row seat to that and really building the security practice at Citigroup. Over those six years and then leaving in two thousand and eight and then doing it again at Blackstone for another six years, that really gave me the courage ⁓ to go out and and kind of plant a flag as the industry's first investment bank that was exclusively focused on this space. I knew there was a need. ⁓ I just had to get to a point in my career where I felt like I was the one to go and do it. And that's why Momentum Cyber and that's why we did it when we when we decided to do it. Was pressured to know where the industry was gonna be in ten years? From then I had no idea to be honest with you. That was I mean, because that was well before the platformization of cyber, where like go back to that rainforest orientation, like part of the challenge is cyber is a heavily intertwined and symbiotic ecosystem. And before some of the platforms started to emerge, yeah, you had twenty different categories from different vendors and everyone was restricted to their category that the poor CISAs were trying to weave together. So that means that was that was a big That back then, I I can imagine that it was. And and we saw, you know, I mean, that's when, you know, John Thompson at Symantec started to broaden out beyond the endpoint and bought message labs. Actually was the time we sold the message labs to get them into the email pro you know campaign. They did D L P right. ⁓ and so they started kind of that was one of the first platforms. What ⁓ what Dave DeWald over at McAfee was trying to do with ePolicy Orchestrator, if you remember that. That was kind of the first attempt at a SOAR platform embedded into McAfee. I ended up selling Nitro Security, which became their sim. We sold them secure computing, which per they were a barbell business. They had SMB and consumer and they had enterprise. They had nothing in the middle. That came along with it, the acquisition of Jay Chowdhury. Jay Chowdhury's company, Cypher Trust, we had acquired at ⁓ secure and then sold that package to Dave and then Jay went off and created Z Scalar. So having I I just I was so lucky to be the guy that was in the middle of a lot of these boardroom conversations so young in my career. Yeah. What a what a great front row seat. And and from where you sat, you get to talk to everybody. Like ⁓ the vendor side, like where I've sat, yeah, you you get to talk to a lot of people, but you don't get the same inside perspective that that you're able to get ⁓ consulting to and helping so many different companies. You do. And and and then you realize that we have a ⁓ we have a a seat around the boardroom that most other companies don't have in their buying persona, which is the CISO. And so I know that you and any company that you've ever had has a customer advisory board and you are maniacally customer focused and you want to take that input. ⁓ and then we saw the ⁓ the the investors do this with teammate. Right. And their tribe and they they have their CISO councils. And we've seen this very successfully done on the buy side. And so what we did at Momentum was we just mirrored that in the sell side. So why is it why why aren't investment bankers, why why don't they, why can't they sit in the same room and speak the same language as a chief security officer and be relevant to that person? If you're gonna help them get big and you're gonna help them go fast, right, you need to understand the voice of the customer. Why why do you think that Because both teammate and then Cyberstarch Kelly Renan, I think did a really nice job of iterating and improving that model. And obvious as companies, like we're maniacally focused on that is like you've got to really understand the CISO and get their advice. And why do why don't you think that most investment banks and sellside guys are mirroring that approach? Simply because they're transactional in nature and they're not relationship. Now they build relationships over the sales cycle. ⁓ but what we try to do at momentum is after a deal is done. ⁓ we want a vacation with our clients. We don't want to be on their Christmas card list. There's a very different, you know, and you've closed a lot of deals, and I'm sure your friends or friend Lee, ⁓ you know, with a lot of those advisors who put in a lot of work for you over the years. Yeah. But it tends to be very transactional in nature. ⁓ whereas we're trying to build long term value for the community and you have to do that through relationships. Yep. And they may never pay off. I tell you. So there's a small company. that we made an introduction to that turned out to be their largest customer ever of 600K in ARR is a four year deal, $2.4 million in TCV. This company had less than $10 in ARR. That was huge. That added five points of growth and one introduction from momentum. Now are we gonna work with this company? You know, we're not currently working with them. Maybe we'll work with them next year. Maybe it'll be the year after that. But really just thinking through is like what's what's best for them, you know, ⁓ today in terms of their business. It's not my, you know, need for another deal or a bonus pool enhancement for the junior team, you know. And it it goes back to that in progress theme, right? It's like you you really enjoy the day to day and it's not a transaction or a tit for tat. It's it's learning growth, relationship, community, and and you can see that through your firm. Really is. I'm you know, they're I'm not in my own office. ⁓ that picture, I don't know what that picture is of me behind me. ⁓ I I'm in the office of a private equity firm here in the Bay Area for a client today. This client I first met in his living room, his wife made dinner for us. He was at four and a half million in ARR. This year, Doug, they're gonna cross over 40. This has been an eight-year journey for them. And I have been with them every step of the way. I've helped them do two. capital raises, they're still bootstrapped. ⁓ those were structured credit deals, so they still own all their cap table and we're ⁓ within weeks of ringing the bell on what is going to be a truly, you know, ⁓ generational wealth creating event for what is now become a family friend. His wife and my wife, you know, ⁓ know each other very well. We vacation together. And so I think really that's what it's at. I mean momentum is trying to build a community platform just as much as I'm trying to build a world class investment bank. ⁓ I think you're a great beacon to to the world around us. ⁓ that just goes back to like who you are as a person. ⁓ but so transitioning, ⁓ thank you for that backdrop. Great stories. ⁓ you are you have a prom row seat to this industry. You guys put out some really, really interesting reports given your focus. Why don't you give us a little bit of flavor of what you've seen happening over the past two, three years ⁓ within the cyber industry and your latest report, I think has if if everyone here, go download it. ⁓ it has so many interesting insights. If you're in the cyber industry, you care. it's it's a it's a great read for Yeah. Well, first of all, I'd like to give credit to our head of research, Jake Pollack. ⁓ young man, still in one of those mid twenties of guys that just ⁓ definitely punches above his weight and and is ⁓ is kind of wise beyond his years. But he he and his team go to work every day not wanting to miss a deal, Doc. Like Ever. Like that it is it is a professional, ⁓ you know, just almost a a a a maniacal focus on making sure that we have the best, cleanest data because we realize that people make decisions on it. ⁓ and so, you know, thanks to Jake and his team for what they do and printing out that that that research. ⁓ what last year was was pretty insane, wasn't it? I mean, when we looked at the gonna was was cybersecurity MA gonna reach the hundred billion dollar volume mark for the first time? And here we are in November and I'm thinking, I'm predicting that it is, it is, it is, and man, we just came shy. We were at ninety six billion dollars of volume. Yeah, just on right. You know, does that really matter when it was driven by sixty percent of that, sixty five percent of that volume was driven by two deals? And had those deals not happened, we wouldn't even be talking about that. The headlines create the exuberance. They're the clickbait. The health of our market really is in deal count, not deal volume. And the deal volume will swing. I would say over the last we do call the last three or four years kind of the era of the mega deal. This is the first time that we've seen people step up to, you know, ⁓ ten billion dollar plus deals, ⁓ c very consistently. ⁓ but you know, there were only eight billion dollar plus deals all of last year. The market in cybersecurity and you know, is is really in that kind of hundred The $500 million range. And only one in six deals are have disclosed deal value. So think about that for a second. You know, do we even understand there's an opaqueness to the market to the common observer? Now we know the value of about half of those deals, ⁓ just through tradecraft and and and our own intelligence, but we can't publicly disclose that. And so what you see is one sixth of the market in terms of the data is disclosed. But if you look at the health of the market last year, 400 deals. So there's three hundred and sixty five days in the year, right? So more than one time, and this includes Saturday and Sunday, you'd wake up and another cybersecurity company was purchased. There's, you know, about forty five hundred companies that we track in the space. So can you imagine being anywhere where one out of ten assets were purchased? Imagine in your in your in your in your neighborhood, if one out of ten homes was bought in a particular year, you'd say, wow, that what just happened, right? You know, it's it just doesn't work that way. So the fact that that is happening in our industry, ⁓ just really, you know, we we took we took notice last year. And then if you look at that activity, I get asked all the time, well, what do you think this year is gonna look like? Right. And is it in like a lion, out like a lamb, you know, or or how is that g you know, and and I said, I think I'm I'm a I'm personally in a little bit of a wait and see. ⁓ you know, a little cautious about whether or not we're going to see the same results this year that we saw last year. And after six months, we all survived the Mythos ⁓ announcement. We're all sitting here, human beings, you know, still in control. ⁓ and ⁓ and and we have had two hundred and eighteen deals in the first half of this year. So if you annualize that, we're at a pace to exceed last year by another ten percent. I wouldn't have predicted that. I would have said, you know, maybe we'll stay about the same. And so the pace is torrid and it's been driven by a new category that has emerged overnight, AI security. And that means a lot of things. We can get into that. Yeah. ⁓ but this AI security did not exist on our cyberscape, our taxonomy. We have forty three different categories that we d you know, that we map. Yep. And now there's a forty fourth and now it's become about You know, twenty five percent of the real estate on on that visual and by next year it's gonna be fifty percent and then pretty soon it's gonna be the visual. You know, can you imagine somebody starting a non a agentic company right now and getting V C financing for it? Right. So it's interesting because my my view, ⁓ having ⁓ we both live through so many different architecture waves, the client server wave, the internet wave, the cloud wave, et cetera. ⁓ and the core categories. Like what is it, if we just go to cyber specifically, but like what what is it that you're actually trying to either observe and get insight into or defend or to runtime remediate against, those don't really change. ⁓ and so I'm guessing what you guys are doing with the AI piece is how is AI, there's there's AI companies, but their AI DLP companies or they they're AI identity companies or their AI network protection companies more than a brand new architectural segment opening up except in the world. Procting maybe the frontier models themselves, like you know, with when you think about AI security, now that didn't exist, right? Right. And so there is some architectural differences or sort sort of nuances to to AI that didn't exist. pre pre I just a SaaS or on prem world. But yeah, how you do it, like that my my my view, and you can validate this, whether I'm right or not, ⁓ but my view of why there are so many vendors and the typical landscape of a CISO is so complex, you know, seventy, a hundred and fifty, three hundred different tools, is because there are different generations of technology underneath. And the way that you approach protecting a mainframe environment versus a client server environment versus a cloud environment is different. So you've got to have build a different tool that is still applying to many of the same fundamental characteristics. Like there's only so many ways that you can interrogate and successfully breach and successfully move, but you've got to get this new tool. And the problem that I keep seeing with CISOs and CIOs is you rarely can retire those tools because those systems don't go away. But then you can need to buy these new tools to protect these new architectures that that evolved. Is that the way that you're seeing it with AI? We are. ⁓ and I think the it's really borne out in the data too. Last year there were 10 AI security ⁓ and A deals. So all of last year, it was predominantly a financing theme as we saw, you know, the the the space really come ⁓ you know, come on to its own in terms of financing. This year, year to date. There have been 29. So if you extrapolate that forward, we're probably looking at 50 to 60 MA deals just in AI security. ⁓ and this is, you know, this this shows me as a practitioner, MA practitioner, you know, that the crowd like the the strategics out there, the Akamai's, the crowd strikes, the Palo Alto networks that have those, you know, protected TAM, if you will, right? That that customer mind share. They have to continue to add something and innovation to continue to creep that renewal cycle going. Right. And so they're willing to spend a hundred, two hundred, three hundred million, five hundred million, six hundred million dollars to maintain that continued AI road. What's on your AI roadmap? How many times do you think a com company gets asked that? That's a legacy company, right? so that was ⁓ we had a two hour meeting here on site today with this private equity firm and just under an hour was spent on the AI roadmap for this company, right? I know it is top of mind for every investor, every buyer. And I think the answer is we're going to go and hire some engineers is just not good enough and not fast enough for how fast this market is moving. And so we've had a category that didn't exist two years ago, was heavily financed last year and moved into MA motion this year. We've never seen that happen before. And that cycle is that cycle is insane. And I'm trying to keep out in front of it and it's impossible. I I can imagine. Yeah. It's I mean the the rate of change. The rate of change I I both of us love change and and I am daily overwhelmed by the change. I it's the fastest cycle ever, for sure. Yeah. It does keep us young though. ⁓ or focused on youth and longevity and so yeah. So ⁓ but ⁓ but yeah, ⁓ It's ⁓ it's been fascinating. And, you know, who knows where we're gonna see this go, you know, over the next two or three years. ⁓ you know, I mean, there's everyone sort of has predictions on, you know, ⁓ how fast enterprises will truly adopt ⁓ AI enterprise technology. Are they having a a a moment of ROI, you know, quagmire, you know, and trying to figure it out? I mean, you and the you know, from what you're seeing in the infrastructure, you know, you may have a viewpoint on that that I don't have from from from your vantage point. I think I mean there for sure. We're reading every day about CFOs and CEOs beginning to question what can I pay back? Am I getting? ⁓ but the underlying theme, I mean it feels a lot like every way before us, where the CEOs are intent on we need competitive advantage. And the mechanism for competitive advantage right now is you've got to begin to really, really get familiar with the foundational models. whether they're open source or proprietary, and build a bunch of agentic infrastructure or agentic workflows. Like if want to reinvent sales or marketing or engineering or and and the shadow AI that we're seeing through our interrogation of customer landscapes reminds me exactly of what happened with cloud and what happened with internet, what happened with client server. It's just happening at a rate that I've never seen before because the business leaders are doing, they're just following orders. It's like, hey man, I hear you talking about it. I know it's important. I want to keep my job. ⁓ and so I'm driving forward as quickly as humanly possible. And I think we're back into that very difficult realm of ⁓ the you know, people doing the right thing for their company or for their job category. But to move quickly enough, they're not necessarily. It depends on what the internal politics are like and how strong and collaborative the CISO is or the CIO. The governance mechanisms are are severely lacking right now. ⁓ which is I think creating another whole different friction element other than am I getting return on investment? It's I've had opening Four or five AI governance, non human identity, you know, f vendors proactively reach out to us over the last two weeks. Hey, we have s you know, interest at the table or We're seeing a lot of, you know, activity in our space. Should we be thinking about proactively running a process? And you find out that they have less than 30 employees, less than five million in revenue, and they're already starting to reach out to a banker asking if they should be thinking about proactively running a process. It is just this this ident you know, that you said it ⁓ well, ⁓ you know, a the the the shadow AI, right? Under not understanding what these agents are doing and at the pace and velocity at which they're doing it. is pretty alarming. And from my seat, you know, we're we're that is probably the hottest topic right now. And we're seeing identity ⁓ vendors move into data, data moving into identity. So DSPM and and it you know, those th those worlds have sort of come come together. And a lot of this is just because ⁓ you know, the agentic world has been the catalyst. Yes. Yeah. So yeah, go ahead. No, no, no, do you go ahead, Dick? So so you're you're seeing the strategics in the buy side swing very quickly. on this is happening fast. ⁓ and we could theoretically go, you know, compete and try and hire three awesome or five awesome agentic AI first folks and try and try and spring something up. ⁓ but but it sounds like the overriding theme is the general orientation is we don't have time. ⁓ even if we can bring something with even reasonable enterprise grade to the market in in nine or twelve months, we might not get it right the first time and the market's moving so quickly. Is that is that the key? driver. That is one of the key drivers. The second is the talent themselves. If you have that skill set, do you want to go and work for a legacy security company or legacy enterprise company? Or do you want to be working for that company that just raised a hundred and fifty million dollar series A or the two hundred and fifty million dollar series B that we helped Eric Foster and 10X raise a few months ago? You want to go work for Foster, right? And so, you know, that's where the equity upside is gonna be. So it's almost impossible to build when the talent is working away from you. Right. You have to and so it's almost ⁓ you know, required that you're gonna have to acquire the company to acquire the talent. Yeah. It sounds like a blend of blend of aqua hire and a product gap. We did a report that your readers should or your your your viewers should should should take a look at. What is a world class cybersecurity team work? We're the the only ones that have ever done it and looked at it this way because of a lot of these, they're called enterprise acquire deals. Is it enterprise value or is it acquire? It's actually a blend of the two. And when you look at them, we went out and we surveyed the deal sizes for like the top, I I don't know if it was a hundred or a hundred and fifty deals ⁓ over the last six years. And then the imp head count at the time of the acquisition. Okay. And it shows a pretty remarkable spread in terms of. You know, how much people are willing to pay per employee for some of these transactions. And no surprise, some of the highest dollars paid per employee were some of these more recent deals done over the last two years in AIs. Yeah. That makes perfect sense. Mm-hmm. So from the cyber landscape itself, ⁓ because you've got this awesome seat ⁓ of strategics, startups, CISOs that you talk to, enterprises that you interface with. What what are you what are you seeing as far as understand like the the complexity of the environment, understanding of that environment, and where people where the typical cyber team is is thinking through how to pivot effectively to map the new physics that we're seeing around cyber because of the strength of the foundational models and the agentic capability and ⁓ and the turbulence it's creating around the world. Yeah. I mean, a as you know, ⁓ former CEO of Splunk, right? I mean, one of the companies that really was got to see all of the data, right? And was, you know, monocally focused on detection. For more than a decade, the industry has been exceptionally good at seeing these problems. ⁓ but seeing a problem is not the same as stopping it. And what I am seeing is two things. While the most obvious use case for AI and security. is automation, right? I think that's kind of the low-hanging fruit. We have seen a wave, a spate of ⁓ SOC automation companies. I mean, I can't even count them anymore, right? Autonomous SOC, agentix sock, you know, ⁓ sock 6.0, whatever you want to call it. Right. And sort of there's that there's that focus. Well that's just better detection, faster detection. And that is absolutely critical. So while I see that and I see that we are becoming better and better at something that we've been focused on For 20 years. ⁓ I've actually seen very recently ⁓ some very substantial raises for companies that are back to prevention again. Glow, what was the other one? ⁓ lose company ent, ⁓ so risk IQ, you know, ⁓ and so these are companies that are raising $150 million, $180 million in their first round. I call it seed to see. I don't know if I should trademark that, but it's literally like, you know. One of these very prominent Excel, Light speed, Greylock, basically saying, Look, we want to own the first three rounds out of the gate because guess what? This gal, this guy, they've done this successfully for us. So there's been a flight to quality that we have seen, a flight to safety, I call it sometimes. ⁓ and and so the the financing volumes are actually down, but some of the dollars per deal are ten X what we used to see, you know, five or ten years ago. ⁓ because Quite frankly, they're they're looking at these folks saying, okay, you're taking an a jet tech viewpoint on an old problem and you six you were, you know, we we made money with you in the SaaS era in the cloud era. We're gonna make money with the you in the AAI or yeah. Yep. That makes sense. So a heavy filter, a heavy filter on who do we believe has legitimate capability to to actually execute. And then we're gonna give them five times more money than we gave them the first time around. And we're gonna tell them you have no excuse to get this wrong, right? You can't blame it on execution. Yep. Yep. So it's me it'd be good to go back and forth on what you're seeing, because that sounds like early indicators versus what we're hearing. ⁓ because what I'm hearing everywhere I go, including the response to methos, which yeah, we all know it's just a moment in time, ⁓ is you've got to detect more rapidly and you've got to patch. more rapidly, which I've been arguing for four months is not the recipe for success. But that's the vernacular. Like the vernacular is double down on detection, like get faster, outrun the adversary. but it sounds like in the financing community, they're understanding that prevention and runtime remediation are actually going to be the more important elements. Is that is that true? Is that what you're saying? I d I do believe that. I'm I'm not dismissive of the fact that The adversary is working faster and nation states are now employing AI. And so that's somewhat of a cat and mouse Tom and Jerry game. And we we saw that the that show went never went anywhere. It was just the same folly, episode after episode after episode. But we still laughed at it and it still entertained us for years. And so will this. I mean, so so as long as the the adversaries are going to use this technology, we must absolutely use this technology to defend ourselves. Right. But it's really at the infrastructure layer. And I think I'm probably preaching to the choir here on this ⁓ episode, but you know, and and and thinking through how how, you know, how do we how how do how what what is prevention in the world of a vastly different architecture, right? Or an architectural divide, if you want to call that, that we've not seen before. And ⁓ I've listened to a lot of your content, Doug. And I've I've paraphrased it a time or two in in in some of my meetings. And I think that's the part that I'm not quite sure that the CISO has a full understand the average CISO. I don't want to just say and it's not it's not being ⁓ disparaging by any means. It's just it's it's evolving so quickly and I think the problem is such at a huge scale. and and so I think prevention for this you know architectural divide is something that it's really hard to get your head around. And I don't know that I have a company that's gonna solve that through ⁓ you know, one ⁓ and A event. Right. Right. Yeah. I mean arc architecture Is so is so important, but is such a different approach than than transactional and band-aids. And I think we definitely have been in a loop of band-aids for a while. And we I think we've gotten away with it. But yeah, I just have been so passionate because I I think we're at a point in time where if you don't get back to the the the fundamentals and use first principles and really think through the entirety of your landscape and an architectural level, at the open AI hugging face, everyone's talking about it and this will date this podcast, but It's so fascinating because it is a classic case for architecture. I the whole that there's a bunch of dynamics, but the core story for me is ⁓ an intelligent hacker break broke out of the confines of their environment. ⁓ and that ultimately is an architectural play. Like that sandbox obviously had a few flaws that enabled a super skilled adversary to mitigate the controls, to to circumvent the controls. But more interestingly, for Hugging Face, ⁓ what what most of us have been trying to say is getting in is not gonna be hard. Like there's infinite vulnerabilities that are gonna exist for a very long time until we completely correct and harden our environments, which is not an easy and immediate pat process. So entry is now easy. It's how bad is the damage? Right. And so getting into Hugging Face, like they're the victim, totally get it. The real interesting question is like How do they get to the production database so quickly without being stopped? And even more interestingly, like how they exfil the credential the answers ⁓ to the test from the Huggy and Face production database? Like that that's an architectural question. ⁓ are you seeing And look at the sprawl of this architecture, right? How many articles am I gonna read in ⁓ you know, in in the media about the sprawl of data centers in my hometown, right? I mean the the the the the architectural footprint is massive. If you look at the amount of spend by, you know, the top twenty technology companies by market cap, it's mind boggling. It it is. Like there's every wave has said we're going to simplify. and all that they do is add two rather than simplify. And the clouds were supposed to be well, everything will just wind up in AWS. My will simpler. It's like, no, you're gonna have four clouds. Plus you're still gonna keep some stuff on your data center. Plus, you're gonna have some colos. And now it's like, well, I now need the neo clouds. ⁓ yeah. So the going back to that architectural divide, the diversity of environment combined with the diversity of workload, because you've got serverless constructs and ephemeral constructs like containered containerized workloads plus static workloads and SaaS and PaaS services that you don't control but are part of integral within your environment, plus the supply chain of open source and other elements you've linked in your code. It's it's what about the physical world, right? I mean physical AI. Yeah this this is a whole nother ballgame, right? And starting to finally see some promise of the convergence of the two. ⁓ or at least there's been some substantial MA activity service now buying Armis and you know Mitsubishi buying Nizomi and what recently Accenture's done with Robert Lee's company and Dragos, but keeping its independence. That world is finally starting to grow up, ⁓ in terms of, you know, ⁓ there's the TAM, which is the addressable market, but then there's the penetrated market, right? The PAM, if you will. But and and and that market has been very lowly penetrated because it's a very complex, heterogeneous market, right? It's not a homogeneo IT is much simpler than O T. and so what we're seeing in that space finally is, you know, ⁓ vendors try to attack, you know, we're we're we're starting to see that, you know, once some of those systems, you know, energy, rail, any of those systems are compromised, massive impact to humanity. Yes. Yes. So I mean how when when we when we talked about architecture, like what is the the again, I've been jumping up and down around there's really only three foundational runtime control layers or aspects of our technology. There's the identity layer, there's the computer endpoint layer. And and again, what runtime control, you can stop an action from happening that's in progress versus prevention. And and you could also potentially prevent if you got the right controls. And then the network layer. ⁓ because that, you know, our whole tech world, whether it's OT or IT, is entities, I would say humans, but now entities acting on compute, talking to entities acting on compute. So what do you where can you stop it? Like those are three things that if you see something going wrong, you can actually Quarantine and and and try and reduce the blast radius or reduce the carnage that you're going to experience. Do you does that resonate with you? And are you hearing where is the industry in processing that? Because it goes back to the fundamentals. I mean, identity is stolen the show. So they've gotten a lot of visibility. Absolutely. I mean, I I I look at things as, you know, when we used to look at MA paradigm and we go into boards and we talk about you know, features, right? And and how to stay relevant and roadmap and making sure that, you know, you're staying ahead of the competition. And we look at, you know, profiling what maybe your North Star company has done from an MA profile. And it really was really around kind of ⁓ best of breed versus best of suite, right? We kind of do this pendulum back and forth and back and forth. That is the old paradigm. Today I look at strategic control points and I look at identity as the hot control point for today. Yes. And why did, you know, Nikesh, you know, ⁓ make a substantial acquisition into identity when they said we never want to want to be an identity. We never want to be an I you know, that's not us. That's not us. Well, it has become the control or and the to a topic to short. Yeah. The immediate for sure. Everyone's stuck another. Yeah. ⁓ and are we going to see, you know, endpoint companies, are we going to see others focus on that, you know, data companies, Syrah is out there making a tear. with their, you know, ⁓ with their private currency and that's where that's so valuable in terms of in terms of MA and from a data perspective. That's my vantage point. I see control points. I saw I see OT and IT as a control point, non-human identity. I see that as a control point. And so, you know, it's just a it's it's it's it's the same problem. I think it's a different lens that we're looking at it through. ⁓ and yeah, I'm you know, that's I'm not as steep in the technology as you are, ⁓ you know, but I look at those control points and those are the areas where I see people are continuing to ⁓ we call it, you know, maintain their platform dominance, if you will. Yep. Yep. So if we transition to the network arena, because we haven't touched on that, like what what are you hearing as far as awareness or understanding or interest and using the network as an effective control point ⁓ within these organizations and and vendors like us ⁓ trying to address that space? You know the The network really kind of became the the new kid on the block and then kind of the shiny object or whatever you want to call it when the, you know, post COVID sassy world, right? I mean, I think that's when we sort of start to say, ⁓ the network is cool again, right? You know, ⁓ MPLS, you know, to take taking all that and putting that together in a distributed workforce. ⁓ and I think that in a a gentic world, I mean, try to think about and comprehend what the network really is, right? It's not just your endpoint and what you're doing. It's, you know, talking to the cloud. It's talking to the systems within your corporate network out to the data center. Like you said, how how how did this recent breach you know how how did that happen? Right. I mean, there's just a there's a there there's a complexity and a contour there that we that I can't even really comprehend myself. But, you know, I think that we haven't seen before. And I haven't we there there hasn't been a lot of substantial network ⁓ MA activity over the last couple of years. But I predict that it's coming. ⁓ and I think that as we have more of these, you know, ⁓ AI security incidences, people are gonna try to figure out what is the fundamental problem here and how could we solve it. And it's not more detection. I'll just leave it at that. Yes. As someone who cares deeply about detection, a big chunk of my career was on it. It's like it it's still important. Like I've sold more MDR companies than any other person you can put on this show. I believe it. So I shouldn't, you know, I'm blasting myself a little bit with where I've spent my time, but I can tell you, as you know, the next five years it's not going to be about more off, you know. Yeah. And again, it I it's still it's it's really important. Like we you you have to have the monitors around your home to understand what's going on. ⁓ so it's it's not that it's not important. It's like what additional things are you gonna do? Like if you assume that it's really easy that There's eight billion people now have the locks to every door and every window on every house. So getting in is not gonna be the problem. Like go getting into Hugging Face was not hard. There's gonna be a vulnerability and an access point that you just can't cover pervasively that they're gonna get access to. Then it becomes so what can they do? Like if if they could enter anywhere in my house, like what segmentation and and and and and and detrimental progress things do I have so that they can't just go anywhere and do anything and get back out before I see it. Is that is that kind of how you're seeing the the this sector? Yeah. I I I I think that, you know, that house analogy is a good one. I'm not gonna fire ADT. I am never going to. Yes. Yes. All those things and so they're gonna remain in in in in place. ⁓ Right. ⁓ you know, but it's about thinking about where, you know, your most precious assets are and where they're where you know, yeah, where they're at within the house, how easily accessible they are, why they're where they're at, right? And that's the way I would kind of maybe re paraphrase what you just said, ⁓ which is just a better understanding of the architecture from within and how easy it would be to get that painting out of the house. ⁓ Don't make it easy for ⁓ right? Yes. Yeah. The the contain the blast rays, contain the reachability. Like how yes. ⁓ great conversation. Got in many different angles. I'm I I love when they're just fluid and conversational. ⁓ so I think a good wrap would be you're got a from row seat to so much insight and so much change. What what do you what are your predictions or what what do you what do you see happening over the next six, twelve, eighteen months that people should think through and be aware of or will be surprised by or however you want to approach that question? I And that's a great way to end this conversation, Doug. ⁓ there is one piece of data. I'm a very data-driven advisor. ⁓ eighty-six percent of volume in MA this year has been driven by strategics. Now you've worked with and for private equity backed companies. They have somewhat dominated our landscape, you know, our our ecosystem over the last five or six years, and they've had relatively quiet. ⁓ the the advent of strategics making moves and and the market cap now behind Some of the larger, you know, anchor strategics in our space, some of the companies that are moving into our space, the Service Nows that are moving into our space, the Accentures that are making move big moves in our space, ⁓ the operational technology companies, industrial companies that are making big moves in our space. ⁓ there has never been, you know, more market cap focused on a finite number of companies than ever before. And these are very well capitalized companies. But that's not my prediction. That's just what I see happening. And that's what everybody sees happening. But my my prediction is follow the people and follow the money. When you see folks like Thomas Curion leaving his posted article to go join Google Cloud, what two MA deals did they do after Thomas arrived when Google was considered a joke in security? Mandiant and Wiz. Google is now considered to be the secure cloud and the fastest growing cloud company. Follow the people. And follow the money. There are some Frontier Lab companies that have hired away some significant talent from some of these hyperscaler companies like Google and Oracle and and others. ⁓ and I just say follow the people and follow the money. Great advice. That is a great first principles. You can do a lot with that. I'm gonna I'm gonna we have a separate conversation about that one. Okay. Well, I really appreciate you taking time, Eric. I know that you ⁓ have a super busy schedule. ⁓ And ⁓ I it's very insightful to me. Hopefully it's insightful to everybody that watches it. ⁓ and thank you. Thank you for joining us. Yeah, thanks for having me, Doug. Always a pleasure.