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Armed with a star hacker brand, Clearwater tech firm KnowBe4 eyes a future IPO

Stu Sjouwerman, right, founder and CEO of tech security training firm KnowBe4 in Clearwater, recruited former hacker Kevin Mitnick to join the startup as a co-owner and chief hacking officer.
Published Feb. 5, 2016

CLEARWATER

At 59, serial entrepreneur Stu Sjouwerman is on his fifth startup. This one is called KnowBe4, a security awareness company that trains employees of subscribing businesses how not to get snookered by clever hackers masquerading online as do-gooders or perhaps even the company CEO.

The hackers' goal: to persuade workers to divulge corporate passwords and private data or, worse, wire money to the hackers by convincing employees they are following orders from up the corporate ladder.

This is not hacking in the traditional sense of cracking a company's IT firewall or infecting a computer network with a virus. This hacking is called "social engineering" and aims at getting company workers to do the wrong thing — while thinking they are doing the right thing.

KnowBe4 is growing fast, up 950 percent in the past five years, approaching 80 employees, and on a near-term mission to generate $1 million a month in sales. The company runs simulations of online attacks on client employees to see how many are vulnerable to such hacks, then provides training to help minimize such problems.

Sjouwerman's last business, a Clearwater cybersecurity firm called Sunbelt Software, reached 250 employees and was sold to a venture fund several years ago, netting Sjouwerman an eight-figure payout. The money was great, but handing over his business and its employees to a buyer was tough, he admits.

This time will be different, Sjouwerman insists. The company, located on the 12th floor of a downtown Clearwater building with stunning 360-degree views of the city, the Clearwater Memorial Causeway and the Clearwater Beach hotel skyline, won't be sold.

Instead, the CEO plans to grow KnowBe4 to $50 million in sales over the next four years and, markets willing, take the company public via an initial public offering, or IPO.

If that happens, Sjouwerman will, of course, thank his firm's growing staff for their dedication and smarts.

He will also thank Kevin Mitnick. Because Mitnick, who was the best-known social engineering hacker of modern times, is KnowBe4's special brand.

Unfamiliar with the name? Think of Mitnick as someone who could star in movie styled after Catch Me If You Can (which starred Leonardo DiCaprio in 2002) — if it was about a cyber thief able to talk his way past corporate security forces and past IT firewalls by exploiting the weakness of employees.

Mitnick employed his nefarious people skills in the 1980s and 1990s, penetrating the security systems of companies from Motorola and Sun Microsystems to Pacific Bell before he was caught and sent to prison. He was released under supervision in 2000 and, in the following years, has developed a lucrative business consulting for some of the bigger Fortune 500 companies, writing books and giving speeches.

The foreword of Mitnick's 2011 memoir — Ghost in the Wires: My Adventures as the World's Most Wanted Hacker — was written by an admiring Steve Wozniak, a co-founder of Apple.

Wozniak wrote:

"Kevin has become one of my best friends. … He has lived a life as gripping and exciting as the best caper movies."

Sjouwerman, on a social outing several years ago with Clearwater friends, was asked what he was doing and mentioned his new firm would focus on services to protect businesses against security intrusions like "phishing" (posing as a legitimate person or business to defraud someone online) and "spoofing" (pretending to be someone else using a fake email) among other things.

One of Sjouwerman's friends offhandedly suggested he should talk to her cousin: Mitnick. Long aware of Mitnick's reputation as a social engineering genius, Sjouwerman contacted him and offered him an ownership stake in the new company in exchange for his name and expertise.

It was a marketing coup.

Mitnick's title at KnowBe4 is chief hacking officer. He visits the Clearwater office on occasion from his West Coast consulting base and offers ideas on new products, Sjouwerman says. One of company's more popular products is called "Kevin Mitnick Security Awareness Training 2016."

Mitnick's photo is framed on the wall by the company's entrance. His cleverly designed metal business card includes a tiny set of lock picks.

In the cybersecurity world, the reformed Mitnick is now considered a rock star.

And that brand is a big plus for KnowBe4.

Consider Wednesday's headline that appeared online on the Forbes magazine website:

World's Most Famous Hacker Raises $8 Million To Play In Billion Dollar Training Market.

The Forbes story ran with a photo of a clearly younger Mitnick from 2000, wearing shades and standing outside the Los Angeles Federal Court building.

That's pretty cool marketing for KnowBe4, even if Mitnick is not the driving force in negotiating an $8 million funding deal.

Truth is, says Sjouwerman, KnowBe4 doesn't really need venture capital for the money. The entrepreneur started the business with his own wealth and the company is already generating millions in annual revenues.

But there are other reasons to win VC funding. An injection of funding from a sharp venture capital firm is not only another signal that a young company is worth investing in, the KnowBe4 CEO says. It also opens doors to other businesses and potential customers.

With the $8 million in new funding, KnowBe4 becomes the second investment by a new venture capital fund called Elephant Partners. Sjouwerman said the deal went smoothly because he got along so well with Elephant co-founders Andy Hunt and Jeremiah Daly.

The addition of venture capital backing also begins to set the stage for a KnowBe4 IPO down the road. If it happens. That's always a big if given the rapidly changing tech market, competitive pressures and a stock market that, at least for now, has proved chilly for young companies trying to go public.

But Sjouwerman has decades of experience. KnowBe4's bottom line is healthy. The company's staff seems loyal and dedicated to growing the business. So many former employees of previous startup Sunbelt Software are joining the new company that Sjouwerman calls it "putting the band back together."

And nobody else has the Mitnick brand.

Contact Robert Trigaux at rtrigaux@tampabay.com. Follow @venturetampabay.

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