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【VC's View】CYBAVO achieves major milestone in Taiwan's next technology wave
We decided to give up short term revenue and aim instead for solving large scale problems and to become the sector leader. Then it will increase the success and growth of your business in the world.
In 2021, 500 Global had the privilege of investing in cybersecurity and digital asset company CYBAVO co-founded by Taiwan cybersecurity veterans Paul Fan and Tim Hsu. In less than a year of investing in them, CYBAVO participated in 500’s U.S. accelerator program, gained global investor and partner exposure, and was acquired by one of the biggest global players in the web3 world. We believe we are witnessing the next phase of Taiwan’s technology startup era, and the successful exit of CYBAVO is one of the early signs of what is to come.
Due to the significance of this milestone and the opportunity to hear directly from a successful founder, I wanted to publish a conversation I had with Paul Fan, the CEO and co-founder of CYBAVO. We hosted a gathering for Taiwan founders last month at the Taiwan Tech Arena and the following is a summary of the learnings. We are grateful for the opportunity to partner with Paul and Tim in CYBAVO, and also want to share as much of the learnings for other founders in Taiwan who may face similar experiences.
Thank you to Paul for joining us, and if you have any questions or are a founder in Taiwan that wants to connect with 500 Global, please email 500Taiwan@500.co.
How did you and Tim start CYBAVO and what were you working on?
worked in the cybersecurity industry for about 20 years. Before I started CYBAVO with Tim, I mostly worked on endpoint security solution product development, including serving in TrendMicro and Qihoo 360.
At the end of 2017, I had several discussions with Tim about cryptocurrency/blockchain security issues. Lots of crypto exchanges or service providers had security breaches and lost most of their valuable Bitcoin/Ether etc. Tim was a security consultant for some famous crypto exchanges in Taiwan. Then we found a huge gap for offering a secure private key management system for business users. At that time, most business users used personal wallets (app wallet or cold wallet) to manage their corporate and customer funds.
As a result, we decided to build a secure enterprise crypto wallet system for web3 business users. We want business users to manage their digital assets just like using the corporate banking system with the same security, government and risk management features.
What were some of the early challenges you had to solve at Cybavo?
As a security startup, you can easily generate revenue by meeting some project based or consultant based requirements. Sometimes it can bring a few million dollars (NTD) in a short period of time. But most of these kinds of projects drain your energy to develop a real product for scaling up your service worldwide. It is not easy to justify or trade-off between surviving and focusing on product development. Unless you are very sure that you want a project-based or consulting business, do not spend too much time on activities that do not develop your product.
We decided to give up short term revenue and aim instead for solving large scale problems and to become the sector leader. Then it will increase the success and growth of your business in the world.
Was there anything that surprised you?
There is one thing that surprised me about the pricing model. Coming from the cybersecurity industry, we are used to charging a license fee for different functionality and service levels for firewalls or network appliances, for example. We also got feedback from our pilot customers in Taiwan that they didn’t like the subscription fee + transaction fee which most competitors offer. So we thought it might be to our advantage to gain market share with a fixed pricing model. But after around a year of market development, we found it is not a good approach. Global customers didn’t understand why we had a different pricing model and raised questions about our business model and sustainability.
We also received helpful feedback when obtaining insurance coverage for crypto loss policies. Insurance providers pointed out that when you manage more transactions and assets under your service, your liability is going higher but fixed pricing doesn’t provide additional revenue to sustain and manage your growing risk. So we changed the pricing model in the second year and start to have more world wide customers onboard and in the end, all customers flipped to a transaction-based model smoothly. So the key takeaway was that the business model is very important, you should evaluate considerations from different angles. Don’t take lower pricing as your strength and think you can win a price war via lower cost.
How did the acquisition from Circle come together?
In early 2022, Circle found us via their connection in the security industry. Circle CEO Jeremy Allaire reached out to me via Linkedin, and soon we had several communications with their teams. Circle made clear their intention to acquire a custody solution during conversations, but at that moment we were doing fundraising for our Series A round and we reached near full commitment for our round. So we wanted Circle to be our strategic investor and to be a customer during initial conversations. But Circle didn’t want to be an investor only. Jeremy and his management team gave us lots of communications about Circle’s vision and how it will be a good fit for CYBAVO and CYBAVO’s customers. And I also think Circle has a unique position in the market. A regulated and transparent business model is key for a stablecoin issuer and is also suitable for a custody solution provider as asecurity vendor.
Why did you decide to sell to Circle?
It was a very tough decision for me. Even before Circle, we got 3 acquisitions offers in the past 3 years from different vendors. Previous acquirers may have conflict of interests with CYBAVO existing customers. It was easy to turn down the offers since we didn’t want to join a group which may limit our business partnership and growth.
How did we make a final decision to join the Circle? During conversations with Circle, we felt the working culture is quite similar for both parties. And we shared the same vision to be a web3 infrastructure service provider and that regulation and compliance would be key to the successful massive adoption of crypto and the web3 ecosystem. Secondly in CYBAVO we do believe the stablecoin will play a significant role for users from Web2 to Web3. The digital dollar allows users to access digital assets more efficiently and frictionless exchange of value.
So if CYBAVO’s KMS technology created from Taiwan can be part of the USDC ecosystem to help secure all USDC users or more to offer secure custody solutions. It is a great achievement for Taiwan’s software company that can play an important role in the global leading market.
What was the acquisition price?
I’m sorry that I can not talk about the deal’s information according to the agreement.
(While Paul was unable to share the amount at the time, Circle recently made an SEC filing here that disclosed that the amount was approximately $190M in cash and stock.)
We heard that this might be one of the largest software acquisitions in Taiwan?
I’m not sure about that. The most important thing to Tim and me is that we were able to build something important that the world needs. It’s especially meaningful to know that founders like us can start in Taiwan and have the opportunity to build a global business.
Is there anything else you’d like to share?
When you start to plan your own business, you should think about what’s your strength and leverage, which is your comfort zone. But you should have an uncomfortable zone to explore business opportunities. If you are doing what is comfortable, it means your business has lots of competition and is in a mature market. Leverage your strength in your uncomfortable zone to create a unique value position in a new area to accomplish the highest achievement.
Those are extremely wise words and we hope they can help more Taiwan founders to see similar success. Thank you Paul for sharing your thoughts with me!
About Paul Fan
CEO and co-founder of CYBAVO. CYBAVO was founded in 2018 by numerous security veterans. CYBAVO is a leading blockchain custody security solution provider in Asia. CYBAVO was acquired by Circle Internet Financial, the issuer of stablecoin USDC on June 10, 2022.
Paul was a General Manager of Qihoo 360 Security Guard and International Product Group, led the 360 flagship product line and core security technical team, which has grown from a team of 10 to more than 500. The number of users grew from 10 million daily active users to 220 million daily active users and 550 million monthly active users. He has rich experience in the development, operation and market of large-scale user security systems, and has participated in the entire growth process of 360 from startup to listing in the United States and finally returning to China.
Before joining Qihoo 360, he served as the senior manager of core technology of Trend Micro, a Japanese listed company for more than 7 years.
He has accumulated more than 20 years of experience in the security field and has extensive experience in product research and development, security technology innovation, and market strategy.
The original article: CYBAVO Achieves Major Milestone in Taiwan’s Next Technology Wave
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