Cybersecurity Firm Nozomi Networks Receives CIA Funding

• JPMorgan is going deeper down the crypto rabbit hole…

• This cybersecurity firm caught the CIA’s eye…

• Qualcomm’s desperate attempt to stay relevant…

Dear Reader,

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JPMorgan is going even deeper into crypto…

Earlier this month, JPMorgan became the first major bank to empower its financial advisors to offer cryptocurrency products to their clients. This was a bit ironic given CEO Jamie Dimon’s harsh criticism of bitcoin in the past.

But there was a nuance here. All JPMorgan did was make access to five existing cryptocurrency trusts available to its clients. Nothing groundbreaking there.

Well, it turns out JPMorgan is going even deeper down the crypto rabbit hole. The bank has started pitching its own passive bitcoin fund to clients. JPMorgan is developing this fund in partnership with a company called NYDIG.

So JPMorgan has gone from calling bitcoin a fraud… to allowing clients to invest in third-party cryptocurrency trusts… to building its own bitcoin fund. There are two reasons for this big flip-flop…

First, high-net-worth clients and family offices are scrambling to get crypto exposure. But they don’t want to buy cryptocurrency directly. That would require them to take custody of their own coins.

Instead, they want their bank to provide a custodial product that makes it easy for them.

Dimon was very clear about this. He said that he still doesn’t like bitcoin, but his clients are interested in it. And he doesn’t tell his clients what to do. That’s kind of funny considering that his bank is home to one of the largest networks of financial advisors in the world.

Second, JPMorgan stands to make more money in fees by selling its own in-house crypto products. That’s a no-brainer. I bet the bank was surprised at how much demand there was for the third-party trusts, and it quickly realized how much money it was leaving on the table by not having its own fund.

So here we have a major legacy incumbent reluctantly making a big move into bitcoin and the digital asset space. This is very bullish for the crypto markets and the blockchain industry overall.

And it’s just the latest sign of adoption… We’ve begun seeing major movement in NFTs and other digital assets that are opening new markets to investors. As demand increases, these spaces are only going to grow from here.

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This early stage cybersecurity company caught the attention of the CIA…

A big early stage venture capital (VC) raise just caught my eye. Cybersecurity company Nozomi Networks just raised $100 million in its Series D funding round.

And if we look at Nozomi’s valuation, it’s now worth nearly half a billion dollars. That’s up sharply from the most recent valuation of just $140 million. That means Nozomi Networks has nearly tripled in value in the last three years.

This is no surprise given the company’s focus. Nozomi deploys cybersecurity technology that protects critical infrastructure. This includes government facilities, water and electrical utilities, and other core infrastructure.

Of course, this area of cybersecurity has come under the spotlight in recent months.

We had the Colonial Pipeline hack over the summer. That caused major gas and jet fuel shortages all along the Eastern Seaboard. It even led to gas lines reminiscent of the ’70s.

A few weeks after that, we had an attack on JBS – one of the largest meat distributors in the United States. This led to temporary food shortages, and it caused the price of beef to rocket higher.

These events shed light on the fact that our critical infrastructure is vulnerable. We need better cybersecurity to prevent these attacks from happening.

And that’s why Nozomi Networks was able to raise so much money in its Series D round. But what caught my eye most wasn’t the size of the raise but rather the investors.

Facilities automation and building technology conglomerate Honeywell was one of the prime investors in this round. That makes sense given Honeywell’s focus on building automation and safety.

One of our favorite companies in The Near Future Report, Keysight Technologies, was also a major investor, as was Porsche. That may seem strange on the surface, but our cars today are often overlooked in terms of cybersecurity. The reality is that our cars are connected vehicles loaded with sensors, and if they aren’t secure they can be hacked and taken over – literally.

And the investor that stuck out most was In-Q-Tel. That’s what really caught my eye. In-Q-Tel is the VC arm of the Central Intelligence Agency (CIA).

Perhaps it’s no surprise that the CIA would be interested in an early stage company developing cybersecurity for critical infrastructure. However, this investment was completely out of character.

In-Q-Tel typically funds companies in their seed and Series A rounds to help them get off the ground. That also gives the CIA early insight into the key technology being developed.

But In-Q-Tel doesn’t typically invest in later stages like it just did with Nozomi Networks. This tells us how urgent of an issue this has become.

And that’s also an indication of how weak our critical infrastructure truly is right now. The CIA, and other three-letter government agencies, need to get ahead of the nation’s cybersecurity weaknesses.

So we absolutely need to add Nozomi Networks to our early stage watchlist. I would not be surprised to see the company go public within the next 18 months.

And it will likely do so at a small-cap valuation. That could make it an attractive investment target for Exponential Tech Investor.

Qualcomm is getting desperate…

We’ll wrap up today with fabless semiconductor giant Qualcomm’s latest move.

Qualcomm just put in a $4.6 billion bid to acquire automotive tech company Veoneer. This is a company that develops advanced driver-assistance systems (ADAS) technology and other automotive technologies.

Qualcomm’s interest in entering the automotive sector isn’t new. It tried to acquire NXP Semiconductors, one of the largest semiconductor companies serving the automotive sector. Qualcomm failed in its efforts when the deal fell apart in 2018.

It appears Qualcomm is still trying… Qualcomm’s bid came in over the top of Magna International’s $3.8 billion bid for Veoneer. That’s an $800 million premium over Magna’s bid.

Magna International is the largest automotive supplier in North America. And it’s the third- or fourth-largest auto supplier in the world, depending on the year. That makes it one of the most significant companies in the auto industry.

So it makes sense that Magna would want to acquire Veoneer. ADAS and other automotive technologies are right in its wheelhouse. It would be a complementary acquisition.

That begs the question – what is Qualcomm thinking?

We have talked before about how Qualcomm’s position in the wireless handset industry is weakening. If we remember, both Apple and Samsung have stopped using Qualcomm’s processors. Chinese wireless company Huawei ditched them as well.

And just last week, Google announced that it will no longer rely on Qualcomm’s processors for its Pixel smartphones. Instead, Google is developing its own System on a Chip (SoC). And there’s a strong chance that other manufacturers of Android phones will drop Qualcomm for Google’s new SoC.

So the largest smart phone companies in the world are moving away from Qualcomm, leaving the semiconductor giant with a vastly reduced addressable market. That’s very bearish for Qualcomm’s core business.

And that’s what this Veoneer bid is all about.

Qualcomm knows that its business is shrinking, and it’s desperate to add new lines of business beyond wireless handsets.

But here’s the thing – Qualcomm has never been a good steward of the assets that it acquires. It doesn’t absorb and integrate smaller companies very well.

And if we look at the company’s plans for Veoneer, Qualcomm has already said that it wants to sell off most of Veoneer’s business. It only wants to keep the software assets related to ADAS technology.

The reason is that the ADAS technology is tightly integrated with semiconductors and carries higher margins. Most of the rest of Veoneer’s business is generally lower margin.

Veoneer knows that Qualcomm’s goal will be to break up and sell parts of the company…. That’s probably not going to go over well with Veoneer’s key employees.

So this is an awkward transaction anyway we slice it. And it shows just how desperate Qualcomm is.

If it wants to get a foothold in the automotive industry, which would be a smart move, it’s going to have to do something a lot bigger…. For example, German semiconductor firm Infineon. I’m not suggesting that would be easy, and I bet that European regulators wouldn’t like it. But that’s the kind of exposure to the automotive industry Qualcomm needs.

Within the next 24 months, after the wave of 5G smartphone purchases has passed, Qualcomm’s revenue growth will slow down dramatically. It may even turn negative by 2024. We can expect that it will be on the prowl for more acquisitions.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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