Exit Opportunities for Security Startups Look Bright
March 17 2008 | 1 comment(s)
VC Money is Sign of Healthy Exits
We blogged last
week about the availability of VC money for security startups. The
selected entrepreneurs who made it to the final rounds of the Global Security Challenge collectively raised over $19 million following their participation. In a recent article in Red Herring,
Cassimir Medford confirms the vitality of fundraising for security
technology citing the example of Proofpoint -- an email security
startup. This is a good sign for healthy exit opportunities in this
market, because VCs typically only invest in startups they believe will
earn them exit with a return of at least 10-x-cash,.
IPO as a Viable Exit Opportunity?
While
current market conditions for an initial public offering are difficult
for any startup, security startups have had a mixed scorecard. The
fingerprint and hand-scanning company Cross-Match withdrew its filing for an IPO in January 2008, citing an unfavorable market environment. Broadview Networks,
whose solutions ensure protection of critical data and networks, is
still on track for its IPO in 2008. It filed for an IPO on Nasdaq in
November, aiming to raise $288m. Sourcefire
experienced a fast path to a successful IPO. The network intrusion
detection startup was founded in 2001 and just 6 years later completed
its IPO, generating $86.3 million.
M&A the More Attractive Alternative?
It
is every entrepreneur's dream to take his idea to IPO, but
realistically the recent corporate acquisitions of security startups
show a very active market that may prove the better route for security
entrepreneurs.
Lately a bunch of acquisition deals for
IT-security startups have happened with high valuations and hence nice
payouts for the founders and investors. Cisco Systems spent almost a
billion dollars last year for acquiring IronPort ($830m) and Securent ($100m). Not surprisingly, Google also went on a shopping tour and bought the on-demand web security firm Postini for $625 million last July.
However,
IT-security startups are not the only hot acquisition targets as
physical security technologies, such as biometrics and video
surveillance, appear on the buying lists of industry leaders. In
January 2008, L-1 Identity Solutions bought the finger-scanning company
Bioscrypt for $44million. Neither are these deals contained only to the US, as the Israeli video surveillance company NICE bought Actimize for $280 million in July 2007 - a nice pay day for an 8-year old startup, no?
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Comments
April 10 2008 03:26PM by Andrew
Since security companies tend to be more dependent on a few large customers, how does the public markets evaluate this risk? Are security companies more volatile (and valued differently) than similar start-ups out of the security space? Does anyone have a perspective on the start-up's valuation via M&A versus IPO (I know it is almost impossible to generalize, though)? Thanks.
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