Cato Networks, valued at $3B, lands $238M ahead of its anticipated IPO

Cato Networks, the Tel Aviv-based startup that packages software-defined networking, managed cybersecurity and global backbone services into a single offering, today announced that it raised $238 million in an equity investment that values the company at over $3 billion.

LightSpeed Venture Partners led the round with participation from Adams Street Partners, SoftBank Vision Fund 2, Sixty Degree Capital and Singtel Innov8, bringing Cato's total raised to $770 million.

"Cato will use the new funds to scale its organization in three key areas," Shlomo Kramer, Cato's founder and CEO, told TechCrunch in an email interview. "We'll deliver Cato’s vision and customer success to a broader audience, expand our partner ecosystem offering and grow the engineering and product team in charge of our high-velocity train of innovative capabilities."

Kramer, a serial entrepreneur, launched Cato in 2015 after co-founding Check Point, the IT security company, and Imperva, which provides monitoring and risk management solutions for businesses. With Cato, Kramer -- a computer scientist and mathematician by education -- sought to create a platform and architecture that minimized the complexity, costs and risks associated with legacy approaches to network security.

"The cybersecurity and networking industry often face challenges related to the evolving threat landscape, the complexity of securing remote and hybrid work environments and the need for scalable and agile solutions," Kramer said. "Simply adding another point solution to meet each problem isn’t the answer -- it only increases the complexities and costs to IT. What is needed is a single platform that addresses all of these challenges while reusing existing spend."

Cato Networks
Cato Networks

Image Credits: Cato Networks

Cato's product boils down to a cloud-based mesh that lets businesses connect to network resources regardless of where they are. The company operates points of presence -- access points to its and other networks -- around the world, which deliver Cato's aforementioned networking and security resources.

Cato maintains a database of all the metadata of network flows from every device and customer connected to its cloud, which it enriches with security information. This database is used for in-house training and analysis, Kramer says, helping Cato create "robust" AI models for security and management applications -- like data loss prevention and malicious file detection over the network.

"Cato uses purpose-built AI to autonomously process more than 250 threat intelligence feeds, filter out the irrelevant indicators of compromise (i.e. evidence of a network intrusion) and publish updated blacklists to our entire cloud every four hours without human intervention," he added. "Cato also uses deep learning algorithms for threat prevention as part of its intrusion prevention system. The algorithms [identify] malicious domains, which are often used in phishing and ransomware attacks."

Cato's network is technically a software-defined wide area network (SD-WAN), which -- as the name implies -- uses software to control the connectivity, management and services between network-connected devices and cloud resources. It's also a SASE, meaning that the network and security controls are delivered directly to the source of connection rather than a data center.

SASEs and SD-WANs have grown in popularity as workers and apps become widely distributed post-pandemic -- and as companies reckon with the increasing volume of devices on their networks. A recent survey from Omdia projects that SD-WAN revenue will reach $6.4 billion in 2025, up $600 million from the previous forecast. Meanwhile, the Dell’Oro Group found SASE growth soared over 30% in Q2 2022 versus Q1 alone.

Cato has benefited from the trends, obviously, even in the face of steep competition from incumbents like Palo Alto Networks.

Cato's network now has roughly 670,000 remote users connected across its customer base of over 1,900 businesses, and the company last year crossed the $100 million annual recurring revenue mark.

"By converging network and network security into a cloud-native service, Cato takes away operational complexity, risks, costs and grunt work, and enables enterprise to focus on business outcomes instead of keeping the lights on," Kramer said. "Cato differentiates itself by providing a global, cloud-native network with built-in enterprise security capabilities, eliminating the need for multiple-point solutions and reducing complexity for IT teams."

The endgame for Cato is to go public within the next year, Kramer alluded to in previous interviews. The latest round of funding won't derail those plans -- or so he asserts.

With the new cash, Cato plans to expand its product offerings and "global reach," growing its headcount from 800 employees to more than 900 by the end of the year.

"The pandemic accelerated the need for secure and scalable remote work solutions, which played to our strengths," Kramer said. "We’ve adapted to the changing landscape and have experienced growth. Our financial position and growth strategy allow us to weather potential headwinds effectively, including any broader tech industry slowdown ... We're committed to maintaining a sustainable financial model that supports our growth objectives."