Shift5 Redacted Investment Memo
Provided here is our redacted investment memorandum, detailing our rationale for investing in Shift 5 at their Series A in 2021.
Shift 5 is a developer of intrusion detection and prevention systems designed to provide a defense to weapon systems, air platforms, and commercial transportation systems. The team is led by multiple highly talented executives with extensive experience at top-tier security companies like Armis and Tanium.
COMPANY OVERVIEW
Shift5 is building a platform to protect the world’s vehicular fleets and unlock their data.
Shift’s core product uses both hardware and software to transmit, collect, detect and access data from fleet assets such as vehicles, aircraft and maritime vessels. This data capability creates two key value propositions: (1) a layer of operational technology (OT) security, which is the primary product offering for Federal clients like the US Department of Defense and (2) the operationalization of fleet data, which is the primary product offering for Commercial clients like New Jersey Transit and MetroLink.
Shift5 was founded in late 2018 by three technical West Point graduates: Josh Lospinoso, Rhodes Scholar and former Captain in the US Army, Michael Weigand, former Captain in the US Army and James Correnti, former Signal Officer and Software Engineer in the US Army. The three co-founders worked across military security and intelligence before transitioning to the commercial sector.
In addition to the founders, Shift5 has recently expanded its leadership team to include OT security veterans. Shift’s new President is Joe Lea, an early employee and the former VP of Product at Armis (a large OT security company that exited Insight Venture Partners in 2020 for $1.1B at the Series C and is now valued at $2B after a recent Series D.) In addition, the Company has also hired two key executives from Tanium (a large network security company that is currently valued at over $9B). They are Shift5’s Chief Revenue Officer, Ralph Kahn, the former President of Tanium Federal and Shift5’s Chief Technology Officer, E. Egon Rinderer, the former Global VP of Technology and Federal CTO at Tanium.
KEY HIGHLIGHTS
Prominent Highlights
- Highly Talented Executive Team. Shift5 has recruited multiple highly talented executives with extensive experience in security technology. President Joe Lea joined Shift5 after his role as VP Product at Armis ($1.1B acquisition by Insight), and was previously Head of Product at Tanium ($9B valuation). CTO Egon Rinderer was Global VP Technology & Federal CTO at Tanium for over seven years. Chief Revenue Officer Ralph Khan was previously VP Federal at Tanium for seven years, where he built a very large government business. Chief Product Officer Matt MacKinnnon was previously Senior Director, Product Management at both Armis and Tanium. In summary, Shift5 has a very high level of executive experience for a Series A stage company.
- Major Emerging Pain Point. The prospect of growing cyber-attacks on fleets and transportation systems has created a major pain point for both commercial and government customers. Vehicles are increasingly being built with advanced digital systems and components that send and receive information, increasing the surface area for cyber attack. The prospect that planes, trains, tanks, or automobiles can be hacked and compromised has created a major pain point for fleet owners and operators, driving increased spending in this area.
- Growing Market Enabled by New Technology Approach. We size the Shift5 market at $4.4B, comprising federal and commercial land, rail, and air. Of this TAM, $2B is Federal and approximately $2.4B is commercial. Historically, electronics manufacturers have designed electronic systems in a proprietary shroud, locking customers out of valuable data to optimize maintenance, operations and compliance. Systems have also not been designed for security, resulting in trillions of dollars of assets that are vulnerable to cyberattack. Shift5’s modular approach, consisting of quickly deployable components for data collection, monitoring, analysis and management, unlocks this valuable data and enables fleet owners to take action based on the data.
INDUSTRY OVERVIEW
Operational Technology (OT) security is a growing frontier for cybersecurity innovation. Unlike Information Technology (IT) security which protects purely digital assets (e.g. data), OT security protects the digital components of physical assets, such as Industrial Control Systems (ICS). Equipment manufacturers have historically designed OT for robustness and reliability but not for security. As microcontrollers and embedded computers make OT more advanced and less expensive, they also open the aperture for cyberattack. The result is that today there are trillions of dollars in OT that are fundamentally vulnerable to cyberattack. This vulnerability represents massive risk for corporations and governments alike.
As digital and physical technologies continue to converge and the attack surface increases, the need for OT security has grown exponentially. This security concern has been further underscored by the recent rise in OT attacks made against commercial and government infrastructure, bringing OT security into the spotlight.
One asset class that has remained elusive to OT security innovation is fleet vehicles. The world’s fleets (e.g. automobiles, planes, ships, weapon systems, satellites, etc.) were designed with digital components, but virtually no platforms are truly resilient against cyberattack. At the same time, only a few of these platforms expose granular, real-time, streaming data to owners or operators. An example here would be the utilization of a train to avoid breakdowns and optimize fuel consumption.
The result is that asset owners are both locked out of the extremely valuable data that their fleets generate and they’re unable to protect fleets against growing security risks. This gap has created an opportunity for a leader to emerge in vehicular OT security and efficiency.
While serving in the US military, Josh and his team had a front row seat to these vulnerabilities working to protect our nation’s critical weapons systems. They decided to build a company to solve this problem. The team is building a future that envisions fleets that are secure and monitored in real-time. Similar to Tanium’s innovations in network security and Armis’ innovations in IoT and Device security, we believe Shift5 can innovate in vehicular OT security. This presents a very large market opportunity, which we believe Shift5 will seize.
COMPETITIVE LANDSCAPE
To-date, the majority of OT Security providers have focused on fixed assets such as industrial facilities like power grids and factories or IoT and Edge devices. There is no large incumbent that has built a business focused on fleet data. Shift5’s main competitor today is Uptake Technologies, which has a similar mission but focuses more generally on industrial systems. Shift5 is unique in its tight focus on fleet assets (e.g. trains, plains and other vehicles.)
Armis Security
Total Fundraising
- After raising $112m from Sequoia and Bain Capital Ventures, Armis was purchased in a leveraged buyout by Insight Venture Partners in 2020 for $1B.
- Since then, Armis has raised an additional $125m in a Series D funding from Brookfield, Georgian and Capital G, valuing the company at $2B.
Product Overview
- Armis’ main product is IoT device security platform (“Armis Platform”), which includes a Device Knowledge Base product and a Device Query product. Armis also provides a device visibility product called Armis Asset management.
- The main value proposition is to regain control and defend their devices, creating opportunities to reduce fragmentation and liability across the IoT ecosystem. Armis’ main clients include both government and commercial vendors.
Founding Team
- Armis was founded by three Israeli co-founders, Yevgeny Dibrov, Nadir Izrael, and Tomer Schwartz. Yevgeny, the CEO, was previously the Head of Global Business Development at Adallom. Nadir, the CTO, served six years in the Israeli army's Cyber Intelligence unit where he designed and programmed software systems and attained the rank of captain. Tomer, the former VP of Research, has since left the company. He Worked with Yevgeny at Adallom as the Director of Security Research and also spent time in the IDF.
Dragos Security
Total Fundraising
- Dragos has raised $110m from Canaan Partners, Koch Disruptive Technologies, Hewlett Packard and National Grid.
Product
- The Dragos Platform analyzes data sources including protocols, network traffic, data historians, host logs, asset characterizations, and anomalies to provide visibility of ICS/OT environments. The company’s main product is a threat detection and response system that provides context of alerts and aims to reduce false positives in OT security systems.
Founding Team
- Dragos was founded in 2016 by Robert M. Lee. Robert started in security as a U.S. Air Force Cyber Warfare Operations Officer, tasked to the National Security Agency where he analyzed national threats to industrial infrastructure.
Uptake Technologies
Total Fundraising
- Uptake Technologies’ main product is a data extraction and predictive analytics platform. It analyzes data to predict and prevent failures and uncover opportunities for efficiency and profitability. Uptake also offers a platform for equipment monitoring, diagnostic troubleshooting, event and condition prediction, and task management to improve uptime, streamline operations, and spot growth opportunities.
Product
- Uptake Technologies’ main product is a data extraction and predictive analytics platform. It analyzes data to predict and prevent failures and uncover opportunities for efficiency and profitability. Uptake also offers a platform for equipment monitoring, diagnostic troubleshooting, event and condition prediction, and task management to improve uptime, streamline operations, and spot growth opportunities.
Founding Team
- Brad Keywell and Eric Lefkofsky founded Uptake Technologies in July 2014, in Chicago, Illinois. Brad, the CEO, was an early investor of Tempus Labs, and co-founder of Groupon, Echo Global Logistics, Mediaocean, DRIVIN, and Lightbank. Eric is the co-founder of Tempus. He was previously the co-founder of Groupon, Echo Global Logistics (ECHO), InnerWorkings (INWK), and Mediaocean.
Claroty Security
Total Fundraising
- Claroty has raised over $100m since launching in 2015 from a variety of investors including Siemens, Bessemer Venture Partners, Temasek and Innovation Endeavors.
Product
- Powered by our Continuous Threat Detection (CTD) and Secure Remote Access (SRA) solutions, Claroty’s platform provides a full range of industrial cybersecurity controls that integrate with existing infrastructure. The company prides itself on a deep set of integrations including with Check Point and other cybersecurity vendors.
Founding Team
- Claroty was founded by Amir Zilberstein, Galina Antova and Benny Porat. Amir, the CEO, previously co-founded Waterfall Security Solutions, which created some of the first and strongest security gateways specific to critical infrastructure, and Gita Technologies. He was also an officer in the IDF.
- Galina, the Chief Business Development Officer, previously served as the Global Head of Industrial Security Services at Siemens. Prior to that she was with IBM in the Provisioning and Cloud Solutions business. Benny, Claroty’s CTO, was a security researcher at NorthBit. Previously, he commanded a strategic cyber research team within the IDF.
TEAM OVERVIEW
Shift5 has assembled a stellar management team with extensive experience in building and scaling security software companies. As described above, the three co-founders, Josh Lospinoso, Michael Weigand, and James Correnti all attended West Point. Josh graduated as a Rhodes Scholar, then attended Oxford University for his PHD. Michael Weigand entered the US Army and served for 8 years as a Captain, working as a Cyber Officer, Infantry Officer, and Special Projects Team Leader. James Correnti pursued a Masters in Computer Science from Georgia Tech, then entered the Army and served 8 years. Please see detailed bios for the founders below.
Joe Lospinoso. PhD (CEO, Common Director): Josh is an entrepreneur with deep expertise in cybersecurity, data science, and system software engineering. Prior to Shift5, he co-founded RedOwl Analytics, an insider threat detection platform acquired by Raytheon/Forcepoint in 2017. Additionally, he served 10 years as a cyber officer leading teams to build dozens of elite hacking tools for the National Security Agency’s Tailored Access Operations, Army Cyber Command, and the Cyber National Mission Force.
Michael Weigand (Chief Growth Officer, Common Director): Michael is co-founder and Chief Growth Officer of Shift5. He is responsible for defining and overseeing execution of Shift5’s long-term growth objectives. Prior to Shift5, Michael served eight years in the US Army as an Airborne, Ranger qualified, Infantry officer and was selected as one of the first Cyber operations officers. While at a Department of Defense support agency, he served as an engineering and operations officer conducting both applied research and development (R&D), development, and field operations.
James Correnti (Chief Architect, Common Director): James Correnti is Chief Technology Officer (CTO) and a co-founder at Shift5. He is responsible for core product development, developing cross-functional product-engineering teams, internal research and development, and the IT and cybersecurity procedures. Before co-founding Shift5, he had almost a decade of experience as an Army officer running technical organizations, ranging from specialized IT departments that spanned across three continents to being a founding member of two software development organizations that specialized in the cybersecurity of operational technology (OT) platforms.
Shift5 has added several senior executives with deep experience at companies such as Armis and Tanium. Please see select team bios below.
Ralph Khan: Ralph Kahn is Chief Revenue Officer at Shift5. He has over three decades of experience in the technology industry. He is a proven business leader and who has built teams that have grown businesses from zero to over $100 million in revenue. He most recently helped to grow Tanium’s annual revenue significantly.
Joe Lea: Joe has held numerous technical and executive roles during his career, most recently leading Product from an early stage at Armis and Tanium, both high flying startups and Forbes Cloud 100 standouts, where he built the teams and operating models that spawned portfolios of offerings spanning the fields of security and systems management. He holds a PhD in Cognitive Science which has informed his perspective on technology and led to numerous patents and award winning product deliveries.
Egon Rinderer: Egon is CTO at Shft5. Egon has 30 years of experience in the federal and private sectors. He previously served as Tanium’s Global VP of Technology and president of Tanium Federal. As Shift5’s CTO, he will grow the company’s field engineering team to drive rapid growth across federal and commercial sectors.
Matt MacKinnon: Matt MacKinnon is Chief Product Officer at Shift5. He has held a broad array of global leadership roles throughout his career. He recently led teams at Armis focused on strategic alliances and federal product management. As Shift 5s CPO, he will lead Product and Engineering to secure and manage fleets of the world's most critical assets.