The huge potential exit by Israeli cyberattack company Paragon Solutions, which is being acquired by US private equity firm AE Industrial Partners for $900 million, has made waves this week. If the deal goes through $500 million will be divided among 400 employees (20%) and five entrepreneurs (30%). The other half of the acquisition amount will be raked in by investors including US venture capital firm Battery Ventures and Israeli venture capital fund Red Dot founded by Yoram Oron. Former Prime Minister Ehud Barak has a stake of several percent worth about $10-15 million before tax.
Behind the company are a number of senior intelligence figuresd including former IDF intelligence 8200 commander Ehud Schneorson, Barak, and three intelligence veterans (Idan Nurick, Igor Bogudlov, and Liad Avraham). They built a company that has introduced a different concept to cyberattack. Instead of selling to anyone, Paragon chose from the outset to operate, it claims, only in 34 democratic countries. Instead of developing intrusive spy tools, it created "Graphite" software that focuses on extracting information from encrypted apps, while adhering to ethical restrictions. However, on the way to the deal, Paragon has created a crisis in the IDF's 8200 unit and stirred up considerable criticism on the "ethical" package it has promoted. So how was this crisis created by Israeli cyberattack company, which was founded five years ago?
Paragon was launched just at the time as reports emerged that NSO's Pegasus technology, considered one of the world's most advanced cyberattack systems, had been used by undemocratic regimes to spy on journalists, human rights activists, and even opposition politicians in various countries. The affair, which quickly became an international scandal, led to increased pressure from Western governments, particularly the Biden administration, on Israel to increase controls on the export of cyberattack and spyware technologies.
The response was not slow in coming. Israel's Ministry of Defense toughened its licensing policy and imposed strict restrictions on the list of countries that can buy this type of technology. The crisis also exposed the vulnerability of the Israeli industry. Senior cyberattack experts, some of whom had grown up in elite units like 8200, began to migrate en masse to foreign companies, which offered them not only higher salaries but also job stability and regulatory security. Paragon grew out of this.
The fury in the elite unit
When Paragon was founded in 2019, the company assembled an impressive team of cyberattack experts. However, according to a former military official, when Schneorson left 8200 and built Paragon, he stirred up great anger in the IDF. "Until that year, the unit benefited from reservists from the cyberattack world," the official says. "The army's vast knowledge is based on reservists, especially in these professions, and companies like Paragon significantly reduced the number of reservists in these units. After the company was founded, several steps were taken in the IDF aimed at preventing the transfer of knowledge from the army to private cyberattack units, including prohibiting the recruitment of people who work for companies like Paragon into the reserves." However, Globes has learned that this decision is no longer implemented.
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Ethical questions
Regarding the company's vision, the aim was to develop a cyberattack tool that would be both effective and ethical, according to its claims. However, Paragon's statements about ethics and values have also been met with a number of skeptical responses. According to sources in the field, the company shrewdly took advantage of the crisis that had befallen the Israeli cyberattack industry. While NSO and its rivals faced international criticism and US sanctions, Paragon positioned itself as an "ethical" alternative, which strengthened its market share. It was also claimed that the presence of Barak on the board of directors, who has deep ties to the US government, helped the company distinguish itself from competitors and gain recognition as a legitimate player in the market.
But beneath the polished marketing veneer, the business model raises questions. The company's "Graphite" technology is considered less intrusive than its competitors because it focuses only on accessing encrypted messages, but it still allows significant intrusion into users' privacy.
Paragon's public relations director Ido Minkovsky said, "There are no sources that raise these claims, it is all made up. There have been tweets like this and I imagine there will also be others of various kinds in the future."
Published by Globes, Israel business news – en.globes.co.il – on December 19, 2024
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