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KnowBe4 IPO to Drive Global Expansion, More Automation

Security awareness firm aims expand into Europe and Asia, and add automation and machine learning to its technology.

Security awareness company KnowBe4 successfully debuted on the NASDAQ on Thursday, with its initial public offering bringing in more than $150 million to fund the company's international expansion and a focus on new automation and machine learning features.

The IPO highlights the continued strength of the cybersecurity market, and how investors see future innovations and potential gains in the ongoing cybersecurity training of workers and executives. While the number of data breaches has declined over the past year, attackers have increasingly adopted the more damaging attack of ransomware, which has doubled by some estimates and accounts for more than half of all serious attacks.

The trends have put companies on notice, says Stu Sjouwerman, founder and CEO of KnowBe4.

"The amount of data breaches are still going up dramatically, faster than what companies are spending on the human layer," he says. "Well-over 50% of data breaches are caused by attackers going after the human, but companies are only spending 3% of their IT security budgets on the human element."

The security awareness and training market continues to mature, growing beyond its beginnings as a way to satisfy compliance requirements. No longer are the services just about training to comply with bare-minimum phishing requirements, but are now more about creating a security culture among all employees, according to Forrester Research, a market research firm.

"We saw an evolution where a great deal of emphasis was placed on phishing, due to the extreme nature of the threat vector, and many vendors remain focused on phishing," says Joseph Blankenship, vice president and research director for the analyst firm's security and rIsk group. "The compliance-only market has peaked and largely commoditized, [but] I believe the market for security training that is designed to change culture will continue to grow over the next several years."

As the first cybersecurity IPO of 2021, the company has entered a still-hot stock market with its shares closing at $24.14, up more than 50% from its initial offering price of $16. In early trading on Friday morning, the stock had moved slightly down from the previous close.

The company, which started in 2010, aims to expand in to the United Kingdom, Europe, the Middle East, and Asia, especially Japan.

"The future is here, it is just unevenly distributed," Sjouwerman says, paraphrasing a quote attributed to speculative fiction author William Gibson. "The UK is two or three years behind, and Europe is three or four years behind. But markets like the Middle East and Japan are super early ... and those are markets that we can now work on and expand."

In addition, the company will develop new automation and machine-learning features, with an aim toward making an entirely automated and AI-based system. The company also has launched a feature, PhishFlip, that takes actual phishing methods, removes malicious content and links, and then uses them as a test for employees.

The industry as a whole is evolving to deliver better return on investment and make training more effective, says Forrester's Blankenship.

"Security leaders are seeing the need and the value in supporting an overall culture of security in their organizations," he says. "This requires a shift in approach ... like gamification – to make the training more engaging, so that the concepts sink in with the audience."

Forrester considers KnowBe4 a leader in the security awareness and training (SA&T) sector.

The company will focus on helping customers create and maintain a resilient cybersecurity culture that hardens the workforce against phishing and other social-engineering attacks, says Sjouwerman.

"If you put in a firewall, you close all the ports and you open the ports for the apps that need access," he says. "So for a human firewall, we get all the employees from the mail room to the boardroom, and — you can't skip a few of your employees because that is where the bad guys will come in for sure."

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