IT Security Deal Making Heats Up in November

December 1, 2011

AVG Technologies, a provider of internet and mobile security, announced this morning its acquisition of Bsecure Technologies, an Internet filtering provider. Between venture investments, acquisitions and even an IPO, this is the 10th transaction in the IT security space since the beginning of November. Earlier this week, Lyceum Capital announced its acquisition of security software maker Clearswift, which manages inbound threats, data loss prevention, web access policies and compliance, while two weeks ago, Unsubscribe.com, a Los Angeles–based startup that makes security and privacy tools for email and social networking applications, was acquired by TrustedID, a credit and identity protection technology firm.

IT security firms have been pulling in venture funding with just as much fervor. Rapid7, a provider of security risk technology, received the largest sum the security sector has seen recently when it closed a $50 million Series C financing from Technology Crossover Ventures last month. Four other companies also announced investments in November: Skybox Security, a provider of proactive security management solutions, raised $6 million; Quarri Technologies, a maker of on-demand web information security software, raised $3 million; Agari, an email security startup, raised $2.5 million; and Certivox, an information security company, raised $2.4 million. Security and compliance provider Solutionary announced a recapitalization with an equity infusion by Clearlake Capital Group as well last month (Signal Hill initiated the transaction).

Perhaps the most important transaction during the month of November was the initial public offering of Imperva, which offers database, file and web application solutions to protect data in data centers. Overshadowed in the media by the highly criticized Groupon IPO, Imperva (NYSE: IMPV) quietly offered five million shares at $18, above the expected range of $14 to $16, raising $90 million. More impressively, despite severe gyrations of the public markets, Imperva’s stock price has climbed over 15% since it debuted November 8. In comparison, Groupon’s stock is down more than 31% since its offering and general market indices are up between 0.6% and 3%. Imperva marks the first IT security IPO in nearly two years: while KEYW, a provider of cybersecurity solutions to defense, intelligence and national security agencies, came to market with a $91 million offering in October 2010, the last pure IT security company to IPO was Fortinet, which raised $180 million in November 2009 (Signal Hill served as co-manager on the deal).

The security and vulnerability management market is predicted to exceed revenue of $5.2 billion by the end of 2014, according to industry analyst firm IDC3. Venture and PE firms have not been shy about investing in the sector and established security vendors are buying start-ups to fill in their portfolios to supply customers with complete protection. With security threats continuing to climb, the IT security sector can only be expected to witness more growth.


Investors Focus on IT Security as Threats Abound

June 20, 2011

IT Security has witnessed numerous serious cyber attacks over the past few months, and investors are taking notice. Prominent companies and institutions such as Citigroup, Google, RSA, Sony, the International Monetary Fund and the U.S. Senate have been hit by these attacks and reports show that cyber security threats are only growing. Mobile malware threats were up 46% in 2010 compared to 2009, according to research by McAfee, accounting for more than 20 million new pieces of malware – approximately 55,000 new malware threats each day. More worrisome is that these seemingly more high profile attacks are exceedingly more sophisticated — suggesting state-level or organized criminal involvement — and threaten large numbers of online users.  No one is immune, not even security companies themselves, as the recent hack of EMC’s RSA tokens business illustrates.

Partly in response to these threats, venture investments have been increasing in the security sector. More than $147 million in funding was poured into IT Security during Q1 2011, according to data from the NVCA — a pace which if upheld would beat 2010’s total of $432.3 million. Investment valuations are rumored to be rising as well. Advanced threat protection in particular has been an area of focus for investors and corporations over the last several months. Palantir Technologies, a provider of intelligence analysis tools to help government agencies improve public safety and security, recently raised $55 million in funding from The Founders Fund at a purportedly high valuation; in October, Endgame Systems, a cyber security solutions provider, raised $29 million from a consortium of investors.

Other significant venture investments within the security sector include: MobileIron, a creator of mobile device management and security tools for enterprise systems, which brought in $20 million in funding in a D round last month; Bit9, an endpoint protection provider for smartphones, tablets, and computers that connect to enterprise networks, raised $12.5 million in April in a fifth round of funding, and Alertlogic, a provider of on-demand security-as-a-service technology, raised about $12.6 million in Series E funding at the end of March. U.S. investors have also shown an interest in China, buying stakes in companies such as NetQin Mobile, a mobile security company with solutions based on cloud computing. IPO filings are up as well with Imperva, a provider of data security used to protect files in data centers and cloud computing environments, filing last week to raise $75 million, while Trustwave, a provider of on-demand compliance management software, filed for a $100 million IPO in April.

Large non-security technology players stepped up their acquisition activity in the security market recently as well. RIM, EMC, Google, SAP, and VMware all made security acquisitions since the beginning of 2011. While deal values were not disclosed for these transactions, others were not afraid to spend significant amounts for strategic targets — Symantec shelled out $390 million for Clearwell, an eDiscovery platform provider, while Rambus paid $342.5 million for Cryptography Research, a provider of research and system design for tamper resistance, content protection, network security, and financial services. Although deal value was not disclosed, EMC’s acquisition of network security analysis solutions provider NetWitness in April was rumored to be around $450-500 million. Private equity firm General Atlantic also made a big investment in January, when it took a $200 million stake in Moscow-based Kaspersky Lab, a provider of anti-virus software, just a few weeks after Dell paid $612 million for SecureWorks, a provider of Security-as-a-Service solutions. Overall, median announced sector M&A valuations so far this year have risen to 3.78x from 3.19x during the same period last year.

As attacks continue unabated, and computing technology continues its shift away from desktop computers and onto mobile devices and into the cloud, we expect to see a continuation of venture funds flowing into security start-ups, particularly those focusing on the protection of datacenter/virtual environments and mobile endpoints. Eventually, these well-funded startups will be prime targets for bigger security firms and companies looking to stay ahead of the curve — meaning potentially more pay-days for current investors and growing valuations for the security market.


Fashion eCommerce Businesses Find Funding

May 26, 2011

eCommerce has been garnering a significant amount of interest from investors and the M&A market, and one particular sector of online buying that is getting its fair share of attention is the fashion industry. A steady stream of investments is funneling into the sector, no doubt fueled by Nordstrom’s February acquisition of Hautelook for $270 million (and 2.7x trailing revenue). The “Chinese Amazon” 360buy.com started Q2’s influx with a massive $1.5 billion infusion from DST on April 1, and since then, smaller, more fashion-focused sites have been raking in the dollars.

Just this week, Rent the Runway, a provider of online fashion and accessory rentals, brought in $15 million from Kleiner Perkins, just one of the many venture firms betting on eCommerce recently (Kleiner has made five investments in the sector already this year, including Groupon). Other fashion sites have recently brought in double and triple digit investments, including Gilt Groupe ($138 million), Ideeli ($41 million) and ShoeDazzle ($40 million). Amazon.com has even jumped on the fashion flash-sale bandwagon, starting a members-only website called MyHabit.com at the beginning of May that sells heavily discounted designer apparel.

Asian-based fashion e-commerce is also seeing an influx of funding. Sequoia Capital invested “multiple millions of dollars” at the end of April in Milanoo.com, a China-based online retailer and wholesaler with a “passion for fashion.” KupiVIP, a Russia-based private members shopping club for designer fashion and luxury brands, received $55 million last month as well from investors including Balderton Capital, Bessemer Venture Partners, Russia Partners, Accel Partners and Mangrove Capital Partners.

These companies are rethinking customer relationships and are providing a whole new buying experience — an idea that is enticing to investors and traditional retailers looking to diversify. By tapping into social links and creating an engaging user experience, these eCommerce companies are attempting to re-establish the emotions of finding a sale and shopping in a brick and mortar store — but in a virtual world. All of this, plus the revenue bonus that comes with the lower overhead of online properties, continues to be a magnet for investors.

These venture funding totals aren’t massive compared to the recent megafinancings in eCommerce, such as Groupon and LivingSocial, but do they show that the eCommerce sector is moving more and more into the spotlight. Investors are ready to reward companies that aren’t afraid to rethink the business of selling, and retailers are not far behind with their M&A cash arsenals.

Fashion e-Commerce VC Investments, Q2 2011

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Internet Propels NY to #2 in Tech VC Investments

April 20, 2011

A plethora of technology start-ups are planting their roots in New York, pushing the city ahead of its east-coast rival Boston in venture capital funding. Data from CB Insights show that New York State had 261 technology deals over the last year and a half valued at $1.6 billion, compared to only 250 and $1.4 billion for Massachusetts.

The growth of New York venture investments has been fueled mainly by Internet companies While it still lags Silicon Valley by quite a bit — California leads with 42% of Internet VC deal volume — NY comes in second with 15%, almost double third-ranked Massachusetts at 8%. In Q1 2011, New York City alone represented 39 deals valued at $218 million.

Massachusetts still beats New York by a significant margin in total venture funds invested. However, Internet, mobile technology, and social media are allowing New York to gain ground. Investments in companies such as AdKeeper Inc., which allows Internet users to save online advertisements for later viewing, and Kaltura Inc., a video platform for online publishers, are helping to drive this growth. Also, two of the largest deals in Q1 were for New York-based IT companies:  Beyond Oblivion, a digital music service provider, received $77 million from Allen & Company while Appsense, a provider of user virtualization solutions for the enterprise, received $70 million from Goldman Sachs.

The spread of technology talent to the east coast is great for competition, innovation and ultimately technology sector valuations. There are a handful of start-up incubators that have branched out from Silicon Valley to NY, including TechStars, Betaworks and Dogpatch Labs. These VC-backed companies are the future of technology M&A and we expect to see continued interest in the sector by investors and larger acquirers for the next several years.

Top NY Venture Capital Technology Investments, Q1 2011

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VCs Ready To Bring Focus Back To IT

January 4, 2011

The venture capital spotlight is ready to turn back onto the IT sector in 2011, after giving up ground to cleantech and life sciences companies over the past few quarters. A recent survey by the NVCA shows that investments in IT, internet & digital media, cloud computing and mobile/telecom are all anticipated to increase in the year ahead. Between 77-82% of respondents (a combination of VCs and CEOs) expect increases in healthcare IT, cloud software and consumer Internet investments throughout 2011. VC exits for technology IPOs are also predicted to increase, while 81% of respondents suggested that venture-backed acquisitions will also increase.

If VC investments from the fourth quarter of 2010 are any sign of what is to come, then these predictions are not far off. The chart below shows a handful of the biggest VC investments during the fourth quarter – a trend of investments we expect will continue and even spur M&A in the coming months. Social media-based companies in particular received a number of big investments this year, including e-commerce companies such as LivingSocial, and internationally in shopping sites Vostu (Brazil) and Prevalia (Spain). Group buying megalith Groupon recently raised $500 million (with the ability to raise another $450 million) after turning down Google’s $6 billion acquisition offer, while Facebook also pulled in $500 million from Goldman Sachs. These investments, which value the companies north of $6 billion, reinforce the idea VCs are anxious to grab a piece of the pie, especially in social media and e-commerce. Similarly, investments in cloud applications, including the $25 million picked up by both Meebo, web IM platform, and Cloudera, cloud data-management software provider, show the increasing value investors are finding in the maturing technology.

The VC market is beginning to come back to life and that is a great sign for M&A as well. Recent data from Dow Jones shows that 62 Web-based startups worth a total of $4.1 billion were acquired in 2010. That is nearly double total deal volume for both 2008 and 2009 thanks to hungry acquirers like Google, Facebook, IBM and social gaming company Zynga. Preliminary M&A deal valuations year-to-date are at their highest points since the peak of the market in 2007, according to Signal Hill Updata’s proprietary database [see our upcoming 2011 IT M&A Outlook to be published in January]. We have no doubt that a full pipeline of deals, hearty investments in the venture capital world, and an increasingly recovering IPO market will spur even greater M&A growth in 2011.

Select Large IT VC Investments, Q4 2010-Q1 2011
VC 2010-2011 IT
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Technology Venture Investments Jump In Q2

July 19, 2010

The overall U.S. venture capital market rebounded in the second quarter, with increases of 34% and 22% for dollars invested and number of deals, respectively, according to the National Venture Capital Association. VC investments in Software, Internet and IT Services also flourished in Q2. The software sector accounted for 229 transactions — the most since 2007 — representing a 43% increase over Q1, and brought in $1 billion in investments in Q2, a 43% increase over the previous quarter. Internet-specific companies saw a 25% increase in deals, although dollars invested stayed flat, while IT Services witnessed a 28% increase in dollars invested.

Some of the largest investments of the quarter included Digital Sky Technologies’ $135 million investment in social buying site Groupon, and Elevation Partners’ $120 million investment in social networking giant Facebook. Social/mobile gaming companies also raked in large sums including Playdom ($33 million); Booyah ($20 million); and Foursquare ($20 million). Private shopping sites HauteLook and Gilt brought in large sums as well in Q2, at $31 million and $35 million, respectively.

Venture firms also invested big money in non-social/Internet related deals. Palantir Technologies, which develops data analysis software, received a $90 million investment from The Founders Fund and Glynn Capital Management, while Castlight Health, a provider of web-based software for employee medical benefits and costs, raised $60 million from a number of investors including Maverick Capital and Oak Investment Partners. The security sector also brought in a number of larger investments including WiseKey, a maker of digital authentication and security software ($20 million); NetQin, a Beijing-based provider of mobile security solutions ($20 million); and TRUSTe, a provider of Internet privacy and safety seals to business websites ($12 million).

The significant increases in VC investments over the past three months mirrors the growth in M&A data Updata tracked in Q2 [see our upcoming Q2 2010 Review]. We expect venture firms to continue to funnel money into the technology sector, which will ultimately create more competition and a healthy M&A environment for the future.

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Internet Video Market Ripe For Consolidation

March 25, 2010

We have written quite a bit about increasing M&A and venture capital investment in mobile and internet marketing and another adjacent area that has seen swaths of VC interest recently is Internet video and multimedia. From sites that stream video, to companies looking to monetize these streams, investment is rolling in and the M&A side of the market is ready to start taking off as well.

A handful of video sites have already brought in substantial sums of money since the beginning of January (see chart below). These VC investments are not only directed at U.S. companies but are being made globally, including China, Sweden and Canada. Two recent investments, Chinese search giant Baidu’s Qiyi.com and video sharing site Youku.com, were valued at $50 million and $40 million, respectively.

Given investor interest, the next logical step is consolidation, either through combinations of smaller players or acquisitions of larger companies with strong revenues by the cash-rich tech titans, notably Google, Microsoft and Apple — as well as AOL, IAC and Yahoo!.

Over the past month we have already begun to see a pick-up in M&A activity in the space. RoundBox’s purchase of Jacked, a provider of media interactivity solutions, is the latest move by a company to bulk up its web video offerings. RoundBox, which provides mobile broadcast software, plans to integrate Jacked’s service into its Mobile Broadcast Suite to provide broadcast and device customers enhanced TV viewing experiences. Another Internet video property, iVu Media, was purchased by ubroadcast at the end of February. And just last week, KIT Digital acquired MultiCast Media last week for $18 million. Neither RoundBox nor ubroadcast disclosed their transaction purchase price.

TechCrunch recently speculated on a number of other potential Internet video M&A acquisitions we might see in the coming months. These include Tremor Media being acquired by Demand Media; 5min acquired by Scripps; Dailymotion (the French equivalent of YouTube) being purchased by Lagardere Groupe; Ooyala (a former Googler’s new venture) being tucked back into the mothership Google (both of which we have mentioned previously here and here); and BrightCove to be acquired by cash-rich Microsoft.

There is no doubt more consolidation is on the way for Internet video and its monetization technologies. The question remains which vendors will be snatched up first, and whether the valuations will be great enough to justify the investments made.

Selected 2010 Internet Video VC Investmentsinternet video venture capital investments

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Venture Investments Start To Climb For Software in Q4

January 26, 2010
Fourth quarter VC investments hit their highest point for 2009

Venture capital investments may still be at their lowest levels in years, but Q4 2009 started pushing the Software sector back up towards pre-recession levels. Software saw a 54% increase over Q3 numbers, jumping to $959 million coming from 177 deals, according to the latest data from the NVCA. Internet-related companies also continued to see increases, with a 14% jump over Q3 2009 for dollars invested, rising to $908 million through 187 deals. While overall investments for 2009 still showed a double-digit decline, the strength of the fourth quarter is a promising sign of what is to come in 2010.

The VC market has ultimately been run-down by a weak exit environment over the past two years. For 2009, venture investments as a whole were at their lowest level since 1997 with $17.7 billion from 2,795 deals, a 37% decrease in dollars and a 30% decrease in deal volume from 2008. However, now the economy is beginning to show signs of improvement and VC dollars should begin to flow more freely, especially to IT companies, which have been a consistent favorite for venture capitalists to explore.

The Software sector also boasted three of the largest VC investments of the year: Silver Spring Networks’ $105 million investment by Foundation Capital and others; Workday’s $75 million investment by Greylock Partners and New Enterprise Associates; and (more in the vein of Internet services) ExactTarget’s $69.9 million investment by Battery Ventures, Montagu Newhail Associates and Scale Venture Partners.

Already in 2010, well over $200 million in VC investments have been announced for Software and Services companies. These investments include TA Associates’ €60 million investment in eCircle, an email marketing services provider; DFJ’s $15 million investment in iYogi, a provider of remote technical support services; and Allegis Capital and Azure Capital Partners’ $10 million investment in Coraid, a scale-out storage solutions provider.

Along with an already steady flow of M&A in the first few weeks of 2010, we expect VC investments to continue to funnel into the technology sector through 2010. These investments will ultimately allow for more competition and innovation among smaller vendors, and thus, more potential targets for hungry acquirers.


Venture Investments Still Slow, But Not For Internet

November 3, 2009
Internet-specific companies see large increases in deals and dollars invested

The venture capital market still may not be running at its full potential but that has not slowed down investments in internet-related companies. Internet-specific companies brought in $843 million in venture investment in the third quarter with 148 deals, according to the most recent data from the National Venture Capital Association. This represents a 42% increase in dollars and a 15% increase in deals since Q2, numbers that appear to be from a different time and place compared to other VC sectors.

Total venture investments in the U.S. were up 17% to $4.8 billion for the third quarter, but total deal volume fell about 3%. The software sector in particular brought in the most deals (128 investment rounds) with total investments of $622 million — which may appear impressive at first glance, but actually represents a 9% drop in both numbers, putting the sector at its lowest level since 1996. The huge increases in Internet investments also contrast drastically with a majority of the other sectors tracked by NVCA, as more than half experienced significant decreases in investments dollars of between 14% (semiconductors) and 269% (media and entertainment.)

It is not surprising though that Internet is still managing to attract such large investments. Analysts have continually estimated that growth in the Internet sector isn’t close to slowing and there is plenty of data to prove that. Internet-related M&A transactions saw huge growth in Q3, with big names such as Amazon, Google and Yahoo! all in the mix. [For more Q3 analysis, watch for our upcoming Q3 M&A Review to be published October 30.] One analyst recently noted that increasing M&A in the internet sector is not only “a signal of increasing confidence in economic recovery but also a major reinforcement that the Internet continues to experience high secular growth and is getting more widely adopted.”

One of the top 10 largest VC investments in the third quarter fell into the Internet sector — none other than the massive $100 million investment in social networking phenomenon Twitter. And already in the first few weeks of Q4 there have been a number of other significant investments in Internet companies, including: DailyMotion SA, a French-based online video sharing website; Ooyala, an online video and advertising platform; and Yext, an internet advertising company.

As the venture capital market begins its climb back to more normalized levels, we can only expect to see this activity continue through the end of 2009 and well into the coming years.

Selected Internet-specific Venture Capital Transactions, October 2009



Money Flows to New Generation On-demand, SaaS Vendors

August 28, 2009

The market for the next generation of on-demand software and infrastructure continues to heat up as companies look to cut costs and expand their business models to the Web and mobile devices. Investments in cloud computing, software-as-a-service, on-demand and smartphone technologies have been growing in size and number since Q2 2009 and we suspect that this is only the beginning as IT undergoes a seismic shift in computing.

In Q2, Workday Inc., a SaaS-based enterprise solutions provider for human resources, had the second largest venture investment in the U.S., with a $77 million contribution from Greylock Partners and New Enterprise Associates. August has been a busy month with more than $85 million funneled into the subsector as of August 26, nearly doubling July’s $43 million. Part of this increase is attributable to increasing deal sizes (nearly $5-10 million more per deal than July, on average).

August’s investments have included $13 million in Series A funding for Wanova, a San Jose-based developer of desktop virtualization software, from backers including Greylock Partners, Israel-based Carmel Ventures and Opus Capital; nearly $11 million in Series B funding for MobileIron, a Sunnyvale, Calif.-based virtual smartphone platform developer, from Storm Ventures, Sequoia Capital, Norwest Venture Partners and Big Basin Ventures; and $14 million in Series B funding for Apptio, a Bellevue, Wash.-based provider of on-demand IT financial management software, from the new Andreessen Horowitz Fund, Shasta Ventures, Greylock Partners and Madrona Venture Group.

Selected Next-Generation Technology VC Investments, August 2009

Venture capital investments as a whole grew in Q2 2009, to $5.3 billion in funding — a significant jump from Q1’s $4 billion, although the totals continue to sit at their lowest levels since 1997. Technology and internet investments comprised 40% of all Q2 investments (248) and about 36% of total investment value ($1.9 billion), a slight increase from Q1 (230 investments worth $1.7 billion).

While IT investment activity remains muted, there has been a promising flow of activity M&A-wise for next generation software. VMware, a provider of virtualization solutions, announced earlier this month that it will acquire SpringSource, a provider of enterprise and Web application development and management, for $480 million. At the end of July, McAfee agreed to purchase MX Logic Inc., a cloud-based email and Web security, email archiving and continuity services provider, for $170 million; and NetSuite, a provider of Web-based business software, acquired QuickArrow, a professional services automation software maker, for $20 million (Updata advised QuickArrow on the transaction).

Next generation software deals without disclosed transaction values have also been prominent in the past two quarters. Earlier this year, Oracle acquired VirtualIron, a provider of server virtualization management software, CBTS bought Virtual Blocks, a software developer dedicated to building solutions for the virtualization market, and Sun Microsystems acquired Q-layer, an enabler of cloud computing software for enterprises and service providers, all for undisclosed amounts.

In the SaaS vein, year-to-date deals include SAP’s acquisition of Clear Standards, Inc. an on-demand enterprise carbon management solutions provider; RMI’s purchase of 10East, a provider of SaaS software applications for railroads in North America; Bitam’s purchase of KPI Online, an online service provider of business intelligence and analytical tools via a SaaS platform; and Robert Olson’s acquisition of SwiftKnowledge, LLC, a provider of web-based business intelligence software (none of the deals disclosed transaction values).

Venture investments and acquisitions will continue as the popularity of next generation technology continues to grow. Startups in this sector are springing up daily, and activity should expand and capture a growing portion of companies’ recovering IT spending in coming years.

[Updata Advisors presented a Webinar in July titled “Cloud Computing’s Impact on Tech Investing and M&A: Spotlight on IT Security. To listen to the Webinar, click here or visit Updata online at www.updataadvisors.com.]


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