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What A Week In CyberSecurity – Story Matters, and Here’s the “Proof-Points”!

Last week proved once again that the cybersecurity market is alive, well and kicking for investment activity and returns.   Three transactions of significance happened last week and now that we’ve caught our breadth, let’s take a look at what we can learn.  First, in case you were on vacation or not watching the market

  1. Barracuda is being acquired (NYSE: CUDA) by private equity investor Thomas Bravo for an all cash deal of $1.6B, a 16.7% premium on the pre-announcement share price.
  2. KJR Client Skyhigh Networks is being acquired by McAfee for an undisclosed amount. According to publicly available sources, the private funding of SkyHigh was at a valuation of $400M.  And while I have ZERO insider information, one would assume McAfee paid a decent if not large premium over that funding valuation.
  3. Another lesser known KJR Client, Weblife.io made big news when it was acquired by Proofpoint (NASDAQ: PFPT) for $60M. According to Crunchbase, Weblife had only raised about $3.5 M in venture funding, well done!

So, what lessons can we learn from this.  First some of the obvious ones

  1. Investors love software, especially high growth companies.  Just compare the financials of Barracuda and Proofpoint.  Barracuda has last 4 trailing quarters of about $280M in revenue and are profitable, but revenue growth is flat and profit down in last reported earnings.  Proofpoint on the other had, has about $350M in last 4 quarters of revenue but with incredible growth from $76M to $98M quarters in Q416 and Q317 respectively.  But, they are still not yet profitable.  However, the market loves software and rewards growth, and Proofpoint’s market cap sits at nearly $4B, more than double that of Barracuda.  (BTW, these companies sell similar solutions, Barracuda’s being hardware mostly hardware based and Proofpoint’s being software and SaaS, but Proofpoint is also more of an Enterprise provider, and Barracuda a small to medium business one)
  2. Security vendors that can grow can take advantage and consolidate other complementary solutions. Proofpoint has a great currency and is buying up smaller tuck-in solutions at a rampant pace.  The company also closed their $110M Cloudmark acquisition last week.  Security vendors that can grow can take advantage and consolidate other complementary solutions.
  3. Early stage security solutions can yield big returns for investors.  As noted Weblife.io only raised 3.5M, with their seed funding barely 2 yrs ago.  Clearly, Proofpoint saw something in their solution, their story and their traction that was very attractive to them.   Some of the competitors in the broader “web isolation” category that Weblife is part of have raised 10x or more than Weblife and while still early, seem to be struggling to find a path to liquidity.   Simple formula, find a problem, solve it, and sell it to customers, but do so without massive fundraising and your outcome can be great.

One other factor I must point out, and this one may not be quite as obvious, is the value of story in building, capturing and gaining market leadership and investment returns, which is how I helped both Skyhigh and Weblife.

  • Skyhigh’s original launch positioning centered on Shadow IT is a perfect example an “All Pain No Gain” story as discussed in my book, Launching to Leading.  This story, launched at RSA in 2013,  allowed them to claim, grow and be recognized as the leader in a new market segment call Cloud Access Security Broker, or CASB for short.  The outcome speaks for itself!
  • Weblife’s positioning around Securing, Empowering, Simplifying (Employee Web Access) demonstrates the value of what I call “A Brave New World” outcome in Launching to Leading.  And it is also an excellent example of moving beyond feature function and benefit and focusing on value in order to tilt the market to your solution.

I’m very proud of the work that I did at Skyhigh and Weblife.  As they say, success has a thousand authors, and I am happy to just take my 1/1000th portion of credit for their success, as I know that they did at least 999 more things right to get these outcomes.   But story matters, and these are two great proof points (pun fully intended) to prove just that!

 

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