Abnormal Security co-founders Evan Reiser and Sanjay Jeyakumar.
It was never common to grow a startup into a public company, of course. But it used to be much more common.
The number of companies that listed publicly for the first time – that “did an IPO” — fell off a cliff in the past two decades. From 2009 to 2016, the average number of new listings on public markets was 179, compared with 683.5 between 1995 and 2000, the peak, according to the Center for Research in Security Prices.
No one is exactly sure why – the theories range from a size bias toward big companies, from higher regulation costs to the death of value investing.
But in a chicken-and-egg kind of way, one of the results of the decline in public exits is that fewer startup founders seem to aspire to build great companies. The path is narrower, and they have fewer examples. Many founders I interview merely seem to be aspiring to become a rich, recognized person by selling their companies to multinationals.
Evan Reiser is different. He’s set his sights set on the old-fashioned dream of building an institution – and left a nice job at Twitter (he has mixed feelings about social media; more on that later) to pursue the dream. “My goal is to be an independent company with thousands of employees,” he told me in a recent interview.
“I want to build the best team in the world,” he said. “And then I want to go solve as many problems as we can.”
“I’m sorry if these seems like a cheesy answer but I do mean it sincerely,” he added later by email. “If I won the lottery tomorrow I would do the same thing today.”
Reiser and co-founder Sanjay Jeyakumar launched Abnormal Security a few months ago, with $24 million in Series A funding. It is tackling a growing problem: designing systems backed by human analysts that prevent email fraud in businesses, which the FBI said cost companies $26 billion between June 2016 and July 2019. One example: a scammer hijacks the email of someone inside a company and sends a request for money – sometimes big money – to a CFO.
The company has snapped into a market fast: Reiser says the company has dozens of clients with more than 5,000 employees each using the solution, for a total of “hundreds of thousands” of mailboxes protected. It costs $20-$40 per user, per year.
To Reiser, this cybersecurity cypher is a problem worth solving – which is important because it creates that “intrinsic motivation and alignment in a team.”
An Anointed One
Reiser fits the mold of a Silicon Valley CEO on the way to being a public CEO. He is a white man, with a CTO co-founder, Jeyakumar. Reiser failed once, forgivably in his 20s, and then founded a couple of companies with successful exits. He spent time running an important team at Twitter.
His path sheds some light on the process Silicon Valley invented and honed. It’s a process that identifies a problem of the developed world, creates a marketable business solution, and makes big money for a small handful of investors. (Public company small investors used to make money, too, but lately, most of the spoils have been going to early private investors. Here’s an example of the sums involved: Andreessen Hororowitz made $697 million in the Pinterest IPO last year, according to media reports).
The fact that Resier is slipping into the Silicon Valley machine is not something he’s necessarily comfortable with. He doesn’t aspire to be a master of the universe. “I would hate to ever have that brand,” he says.
In fact, he didn’t aspire to much at all when he was in college. He failed out of college at Rensselaer Polytechnic Institute, then returned, buckled down and graduated with a BS in computer science. Then, he got a job on Wall Street, but quit to start a gaming startup. He played poker to finance it; it failed.
He then met a Yahoo executive and co-founded a company called Bloomspot that was acquired by JPMorgan Chase. Reiser described it as luxury version of Groupon. “You were supposed to build consumer web sites at the time,” he said. “That’s what I did.”
Then came a big turning point: He joined AdStack, a behavioral profiling advertising company designed to apply data science to advertising technology. It was acquired by a b-to-b company, TellApart, which was in turn acquired by Twitter.
“I spent my first decade of my career proving to myself I could do things,” he said.
At Twitter, Reiser led a team of 50 machine learning engineers who were responsible for $2 billion a year in revenue. His two key lessons: make sure the right people are in the right jobs, based on their strengths, and be disciplined about operational management.
“You have to be really good at aligning expectations. What do I expect from them? What do they expect from me?” he said.
He never had to fire any of his employees (oh, the virtues of a profitable tech company).
But after a time, he started to think about being a CEO again – and thought he could do a much better job. He also longed to work on a different problem. Though he didn’t criticize Twitter (one of the fundamental rules of Silicon Valley is: Be Positive), he clearly has reservations about social media, which he summed up in a remarkably succinct, logical and disturbing email.
“I think one of the riskiest areas of technology that is not fully appreciated is social media, especially with young children. There is an amazing opportunity to leverage these platforms for education. … However, The technology that powers these systems are getting increasingly better at predicting the perfect piece of content to keep you using the products.
“The recommendation systems are inherently designed to maximize user consumption, so the result is a product that is optimized to keep users for using it as long as possible. I think that children are most susceptible to these systems, and the piece of content recommended by these systems is optimized to keep people from closing the apps, which is very unlikely the best pieces of content for cognitive or social development.”
When he let his network know that he was ready to be a CEO again, he found a spot in Greylock’s incubator. This is a key part of the Silicon Valley CEO machine.
You get an inkling of a good target market – right now, a sweet spot is big companies that have the budgets to spend on AI solutions. Then you talk to people in the market. Asheem Chandra, a partner at the big VC firm helped Reiser interview CIOs at big companies to find their biggest problem. Hence, the “fighting cybercrime/saving email” focus.
“The actual technology is very difficult,” he said, “because the crimes change every week.”
“And the tolerance for false positives is low.”
I asked Reiser whether he’s worried that the AI used to detect the scammers – which can be as sophisticated as recognizing if a person who usually says: “Hello” says “Hey” – could fail to recognize what it means to be human.
There are days when I say hello, and days I say hey. And there have been one or two days in my life when I wasn’t myself at all; the day my mom died, for instance, or when I got sick with pneumonia.
Email is worth saving – it’s one of the more open and egalitarian forms of communication we have. But it’s easy to see that building too high a wall in the interests of saving email might result in killing it.
Reiser said the machine learning at Abnormal Security will always be backstopped by human analysts.
Ultimately, the test of a CEO capable of building an institution comes down to the ability to balance clients, your employees and the needs of the institution itself. Today’s wise CEO also keeps an eye on externalities: how much pollution is being produced, for instance, or whether the technology you invent will have an unintended consequence, like addicting children.
If you add another constituency, the investors, the burden becomes that much heavier. After I talked to Reiser and recognized the pattern in his career climb, I started to think about whether the decline in IPOs partly comes back to Silicon Valley investors becoming so good at what they do, so good at picking the few winners that make the big money.
Are they pouring all their energy and resources into a few good ideas, while neglecting to back the the riskier ones, come of which might ultimately have made it to an IPO a generation ago?
Either way, the expectations that sit on the shoulders of an anointed CEO are high.
Reiser is game. “I think a lot of people start companies while chasing autonomy or wealth; But the reality is that start-ups are hard. It’s easier to join a public company if you care about those things. The difficulties of creating new teams, businesses and products will always be rewarding if you are intrinsically motivated by working with great people on hard/unsolved problems that matter at a large scale.”