NightDragon on cybersecurity: ’This has been the highest threat environment we’ve had’

Dave DeWalt, NightDragon Managing Director, joins Yahoo Finance’s Alexis Christoforous to discuss the company's SPAC and cybersecurity attacks amid the pandemic.

Video Transcript

ALEXIS CHRISTOFOUROS: The new SPAC NightDragon Acquisition Corp. is making a splash in its market debut. The firm began trading on the NASDAQ today after raising $300 million in an initial public offering. You see there it's up 1 and 1/2 percent right now. It is founded by the former CEO of FireEye and McAfee, Dave DeWalt. And he joins us now live from the NASDAQ.

Congratulations on the SPAC. Congratulations on actually being live from the NASDAQ because so many people are doing this and going public virtually. We know the name well, NightDragon, in cybersecurity. You already have a couple of incubators, early and late-stage funds. Why was it important to add a SPAC to the mix?

DAVE DEWALT: Yeah, Alexis, great question. I mean, first of all, this market that we're in, cybersecurity, safety, privacy, we call it is red hot. I mean, this has been the highest threat environment we've had. I've been in this market for almost 20 years, as you just mentioned.

And with all the crises that we've been experiencing in 2020, unfortunately, that's really created powerful attempts by attackers around the world. You saw it with SolarWinds. You've seen it with the elections and information and manipulated information.

But what it creates is a perfect opportunity for NightDragon as well. And as you know, we've taken the company public. We do investments. We do advisory. And here we are, really trying to create a unique platform to tell companies public. And this is our opportunity to really put a strong management team together with a lot of years of management experience, 150 years the amount of red in the S-1, collectively amongst our group, a lot of public company experience, a lot of experience in this sector specifically.

And with our underwriter Morgan Stanley, who does a lot of the lead left in the sector, we've tried to design a very good product to essentially enable companies to go public and really fulfill their maximum potential. And that's what we're after.

ALEXIS CHRISTOFOUROS: SPACs have become sort of the hot new thing on Wall Street. They've become a very popular path for lots of companies to go public. But you're doing something unique with your SPAC. You're implementing something called scale. It's a performance-based structure that's tied to specific stock price triggers. Can you explain to us how that's going to work? And why did you choose to do that?

DAVE DEWALT: Yeah, Alexis, this is really important. I mean, this comes from years of experience too, both being as chairman of boards as well as CEO of companies. What you really want is performance-based outcomes, right? If you're a shareholder in a public company, you want that CEO and that management team to be performance-driven for shareholder value.

And that's what we created here is an instrument, a tool. We call it a SCALE. It stands for stakeholder-centered aligned listed equity, so a mouthful. But what's the idea behind it? To create a structure that is really all performance-based.

So almost like you would issue shares to a CEO to perform for your company, you're basically issuing shares to the SPAC-holders and the pipe-holders to perform for the company. And so the idea is we are here to help create value. And we believe and we're confident we can do that. And we've created a structure that will emulate that.

And it's all based on stock prices, 20% of it coming when the stock goes up, 25% when it goes up 20%, when it goes up 50% it goes up 100%. So the idea there is to really align that and also create a way to slip it into normal course operations. A lot of these fast-growing companies have a gross burn of their stock option pull, 7%, 8%, 9%. This enables it to perform like that and allows the shareholder to be not diluted up front and allow it to be spread across a multi-year period. So kind of a nice instrument, good performance, good team, good market, a really good engine for us.

ALEXIS CHRISTOFOUROS: Yeah. There were some estimates that the total addressable market for cybersecurity could top $180 billion in just the next three years. When you talk about cybersecurity and the ecosystem, it encompasses a lot of things. Where do you think we're going to see the most growth. I'm thinking there's lots of talk about biometrics. Some people don't believe that that's necessarily the future of cybersecurity. Where do you see the most growth potential over the next few years?

DAVE DEWALT: Yeah, great question. We've tried to focus on 11 sectors. And I won't go through all the 11 sectors. But each of the sectors we're focused on with NightDragon are essentially multibillion-dollar TAMs, or total addressable markets, ones that you would recognize, cloud computing, but particularly cloud security. And we see a whole transformation happening in the cloud because of work from home and COVID.

The new normal is a new network. So SASE, what's called SASE, or security access service edge technology, is going to be a $25 billion market. And so we think some these secular shifts that are occurring are big market segments for us to do, identity management, endpoint management, all the way to drones and satellites.

So we have a number of sectors where we think the threat is very high. Commercial defense is low. We want to meet that gap, find the best company, and then help them perform to their greatest potential, which is pretty much what we've been doing as a management team for the last 20 years. We want to help others do it, now through our own SPAC instrument that we brought to the market.

ALEXIS CHRISTOFOUROS: Well, we are curious to see how you grow things out there at NightDragon. Again, congratulations on the IPO today. Dave DeWalt, thanks for being with us.

DAVE DEWALT: Thanks for having me.