Check out this new encryption with a one million bit key?!?!

Feb 11 15:58 UTC 2003

Meganet, an Israeli-U.S. data security company, has developed an encryption
technology that appears to be unbreakable, enabling governments and
corporations, to keep their data safely out of the hands of competitors,
thieves and saboteurs. 

Among the clients that believe in their ability to protect sensitive
information is the U.S. government 


Data security is one of the key concerns for governments and corporate users
today as hacking becomes increasingly prevalent. In 2000, an FBI survey showed
that 90 percent of participating companies had their computer systems
vandalized by rivals, hackers, or even disgruntled employees. In January 2000,
hackers stole 250,000 credit card numbers from an online CD store. They tried
to blackmail the store. When it refused to pay, the hackers published 10,000
card numbers on the Internet. 

Meganet Corporation's founder, Saul Backal, claims that its solution can put
an end to these problems. Meganet offers a patented non-linear data mapping
technology, called VME (Virtual Matrix Encryption), that creates exceptionally
random cipher text and combines it with a one million-bit key, which is
unheard of in today's data security markets. Competing solutions offer a
maximum of 256 bits. 

"There is nothing stronger in existence," says 38-year-old Backal, a dual
Israeli-U.S. citizen who was a tank commander in the IDF in the Lebanon war.
"All other encryption methods have been compromised in the last five to six
years." 

Using this VME technology, Meganet has developed a range of secure solutions,
end user software programs, and developer tools for applications. These
solutions can be used to provide protection for personal computers, the
Internet, e-commerce, financial institutes, satellite communications, cellular
phones and cable. 

The privately-held company has 21 different products in all categories of the
data security market. Its flagship product is the VME Office 2002 suite, a
suite of 10 different products that offers a single solution for all data
security needs within an organisation. 

Meganet has already gained the attention of the U.S. Government. In February
last year it won a $4 million tender to supply the U.S. Department of Labor
with information encryption and digital signatures, for its 18,000 employees.
The tender was later increased to $7m., and is expected to be worth a total
of $20m. by the end of this year. 

Meganet, which has five offices around the world, is now involved in new deals
with two other U.S. government departments. The details of these deals have
not yet been published, but in 2002 Meganet saw $32m. in sales, most of which
came from the U.S. Government or the US Air Force. Already this year, the
company, which has a burn rate of just $1m. a year, has sold a further $35m.
in products, mostly to the same customers. 

While Meganet, which is headquartered in Los Angeles with R&D in Tel Aviv,
is now clearly doing well, the road to success has not been smooth. Backal
stumbled onto the mathematical algorithm behind VMS when he was working as
an engineer in the field of Wide Area Networking. He worked on the technology
for 11 years, and in 1997 applied for a patent and set up Meganet with an
investment of $750,000 of his own money. Initially the industry refused to
take him seriously. "Most of the encryption community called our product snake
oil," says Backal. "Everyone competed to throw stones at us and didn't bother
trying to understand the product." 

For two years the market ignored Meganet. "Ironically this was the best thing
that happened to us," admits Backal. "Noone looked at us seriously so we had
a chance to take a new breakthrough technology to the market and fine-tune
it," says Backal. 

In an attempt to prove VME's strength, Meganet began offering prizes such as
a Ferrari or $1m. to anyone who could break into a VME-protected file. So far,
two million people have attempted to crack the code, but none have managed.



In November 1999, Meganet launched the company at the Comdex computer show
in LA, California, hoping to attract corporate users. The company packed its
1,000 sq. ft booth with attractions, including a $1m. giveaway of Meganet
software. Meganet proved a runaway success, and in the wake of the show it
raised $5m. at a valuation of $50 to $60m. from new investors, most of them
small, private investors. To date, the company has raised $10m., none of which
comes from VCs. 


In February 2000, the National Security Agency (NSA) unexpectedly announced
that it would not grant Meganet an export license. In the industry, the
controversial decision was widely recognised as an admission that the NSA did
not want Meganet to export its technology abroad because it could not break
the code. This merely added to the company's growing reputation for security.
Meganet hired a political attorney from Washington DC and the battle was
finally concluded in November that year when Meganet was given an export
license that excluded terrorist countries. 

By December 2000, however, Meganet was in trouble. The company may have gained
industry recognition, but it did not have sales. Nor could it raise money as
the stock market had begun to crash. 


Backal cut staff from 44 to nine, and reduced expenditure dramatically,
cutting the company's $300,000 a month burn rate substantially. The company
also changed direction and decided to target government agencies instead of
corporate businesses. 

Throughout 2001 Meganet focused on building this new business, ensuring that
its products were compliant with US Government requirements. The devastating
terrorist attacks on September 11 acted as a further catalyst for the company,
and by the end of the year Meganet had become a US government contractor. 

Today, Meganet is rapidly becoming a significant US government vendor. Though
it remains a small company, with just 25 employees, it won three out of four
tenders released by the US government in this sector last year, beating giants
like Verisign, RSA, Network Associates, Computer Associates, and IBM, to
become sole-contractor on the projects. 


Meganet now receives acquisition offers, and proposals for strategic
alliances, but so far has declined them all. "Our position in the US
government market is going to be humungous," predicts Backal. "The government
will publish data security deals worth $450m. in the years to come, and we
intend to grab as much of them as possible. We are already one of the top four
companies in the market as of 2002 and intend to become the market leader."


Taken form www.israel21c.org
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