[ISN] OK Nasdaq, Here We Come

From: InfoSec News (alerts@private)
Date: Tue Mar 13 2007 - 22:13:31 PST


March 12, 2007 
Print Issue

For nearly five years now, Wall Street has been an unfriendly place for 
security companies. The security industry saw its last big IPO in early 
2001, when Sunnyvale, California-based Netscreen Technologies, a maker 
of firewalls and virtual private network management products, listed on 
the Nasdaq. With about $60 million in revenue, Netscreen had a fairly 
warm welcome.

There hasnt been much activity since. In general, the technology IPO 
market has dried up as a result of the increased scrutiny placed on 
public company operating performance, the increasing pressures on 
management and board members, the exorbitant cost of regulation 
including Sarbanes-Oxley, and the attractiveness of the M&A markets, 
says Charlie Rice, principal with investment banking firm East Peak 
Advisors. Security firms havent had it any easier.

That could change quickly. Experts estimate that the industry sustains 
some 700 private security players, compared to just 50 or so public 
security companies. Many of these private firms have been around for 
years and are ready to make a bid for the public markets.

Take Sourcefire, a Columbia, Maryland-based company that markets 
open-source security software that detects and prevents intrusions on 
corporate networks. In October, Sourcefire filed for an IPO and is 
looking to raise $75 million. Founded in 2001, Sourcefire will list on 
the Nasdaq, though it is still not clear when the companys ticker FIRE 
will hit stock screens. If that IPO pans out, it could make Wall Street 
hungry for more such investments.

The public market exit opportunity for technology companies has been 
weak for a number of years, says Jonathan Silver, managing director of 
venture firm Core Capital Partners, and one of the investors in 
Sourcefire. But for companies that are able to demonstrate significant 
revenue growth, widespread customer adoption, and a very clear and 
compelling business plan, there are now public exit opportunities.

If successful, Sourcefires IPO could open the floodgates for other 
security startups. The following are three prime candidates:


URL www.webroot.com
CEO Peter Walkins
FUNDING $108 million
KEY INVESTORS Technology Crossover Ventures, Accel Partners, Mayfield

Anti-spyware has become a category almost as big as antivirus, and 
Webroot rules the roost there. Spyware programs infect computers and 
then steal personal or proprietary information from users. IDC estimates 
that sales of anti-spyware products will grow to $305 million worldwide 
in 2008. Webroots flagship product, Spy Sweeper, is the market leader, 
beating established giants like Symantec and McAfee. But the company 
that has, thus far, emerged the winner on retail shelves is likely to 
face tough weather ahead. Microsoft recently launched its own antivirus 
and anti-spyware product, and Webroot needs to fight hard to ward off 
the challenge from Redmond. Webroot is also a niche player, and for a 
successful IPO bid, it would need to go beyond spyware and develop a 
diversified portfolio of products, say observers. Though the company 
hasnt indicated when it will aim for a public offering, analysts say 
Webroot is likely to take a shot at the markets in the next year or two. 
That is, if it hasnt been acquired by then.

LOCATION Sunnyvale, CA
URL www.fortinet.com
CTO Michael Xie
FUNDING $100 million
KEY INVESTORS Redpoint Ventures, Meritech Capital Partners, iD Ventures, 
Legend Capital/Doll Capital Management, Acorn Campus

Fortinet, which sells antivirus and firewall devices to companies, is 
the security industrys leading candidate for an IPO. The company has 
often indicated its interest in an IPO, but has said it is waiting for 
the right window of opportunity. Fortinets revenues, meanwhile, have 
been growing aggressively. The company saw a huge increase in revenues 
from 2001 to 2005, enough to earn itself the No. 2 spot in the Internet, 
Media & Entertainment and Communications category of Deloitte & Touches 
list of the 50 fastest-growing firms in Silicon Valley. Fortinet CEO Ken 
Xie may well have a lucky touch. Mr. Xie also founded Netscreen, which 
made the last big security IPO in 2001.

Featured Profile: Qualys
LOCATION Redwood Shores, CA
URL www.qualys.com
CEO Philippe Courtot
FUNDING $65 million, 6 rounds
KEY INVESTORS ABS Ventures, GRP Partners, VeriSign, Trident Capital, 
Mercury Interactive, Bessemer Ventures

Philippe Courtot likes to show visitors the customer support area at his 
companys headquarters in Redwood Shores, California. Although thousands 
of corporate customers, including some of the worlds largest companies, 
depend on Qualys security products, there are just four technicians on 
duty at any time.

Qualys can get by with such a small support staff due to its 
software-as-a-service model, which CEO Mr. Courtot says challenges the 
old approach to enterprise software. The company, which focuses on 
security risk and compliance management, offers its security product as 
an appliance attached to a customers network. Any bug fixes in the 
Qualys software and threat updates are automatically sent to the 
customers appliance via the Internet. That means fewer frantic calls to 
the support center.

Mr. Courtot, 63, is not shy about predicting that the security sector is 
due for massive consolidation in coming years. He says security sector 
IPOs have been few and far between in recent years because many security 
firms havent figured out how to grow into large companies. They become 
niche players, he argues.

But Mr. Courtot is hoping his track record of building profitable 
companies will enable him to take Qualys all the way to IPO and beyond. 
Three times before, Mr. Courtot has built companies that have delivered 
solid returns to investors.

He wanted to run his own company, so he applied for a CEO vacancy at 
email startup ccMail and turned it from a 12-man shop into a formidable 
competitor to IBM and Microsoft. He sold the email company to Lotus 
Development in 1991. Then, as CEO, he took Verity, an enterprise search 
company, public in 1995. Later, he became chairman and CEO of Signio, an 
electronic payments startup that he sold to Verisign for $1 billion in 

Now, under Mr. Courtots direction, Qualys has raised $65 million in 
venture funding from Trident Capital, GRP, and AES Ventures. He says the 
companys gross margin is 83 percent and that it is cash-flow positive, 
but wants to hold off going public until 2008. By then, the market 
should be ready to support a new public security company.

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