There seems to be no shortage of money flowing into cyber-security firms these days. However, just because cyber-security is hot doesn’t mean that every technology will be successful or that every investment will pay off, said Bob Ackerman, managing director and founder of Allegis Capital.
Ackerman believes in taking a strategic, measured approach to investing in security vendors that are creating platforms that solve real problems for organizations, including security legacy architectures and building security for the future.
For the last 20 years, Allegis Capital has been largely focused on early and seed round investing, and for much the last five years, the firm has almost exclusively been looking at cyber-security ventures. Allegis Capital is in the process of closing its latest fund called the Allegis VI Cyber Innovation fund.
“Capital [that is] under management needs to line up with our investment strategy,” Ackerman told eWEEK. “You can’t be an early-stage investor and manage a whole lot of money, so we tend to like pools of capital that are around $150 million.”
Among the companies that Allegis invested in last year are E8 Security, which raised $9.8 million in a Series A round in March; RedOwl Analytics, which raised a $17 million Series B round in July; and fraud protection vendor Signifyd, which raised a $7 million Series A round, also in July.
In addition, Allegis invested in search vendor Lucidworks as part of a $21 million Series D round, announced in November. Lucidworks provides commercial support and tools for the Apache Lucene search technology.
What brought Allegis Capital to Lucidworks is the fact that a lot of the applicability and use-cases for the vendor’s technology is related to security, Ackerman said.
With so many companies now in the market trying to solve the cyber-security challenge, Ackerman is confident that’s it’s still a growing market for him to invest in. “This problem set will be with us for the foreseeable future; there is certainly a tremendous amount of activity in cyber-security, but a lot of the activity is not necessarily unique,” Ackerman said.
When Ackerman looks at the cyber-security market, he focuses on two key issues. One is the challenge of securing decades-old legacy architectures that were not built with modern cyber-security in mind. The other is figuring out how to build inherently more secure architectures in the future. In looking to secure new architecture, the move to virtualization and the cloud is a key opportunity, according to Ackerman.
Allegis has invested in Bracket Computing, which provides data center virtualization security technology, and vArmour, which emerged from stealth in September 2014 with its data center security platform. “Both of those companies are looking at where technology is going and ensuring that security is an integral part of the path to that destination,” Ackerman said.
Ackerman points out that the modern world is enabled by a digital substrate. As such, even though some people might think of cyber-security as a vertical niche, Ackerman emphasizes that it’s not.
Rather, cyber-security is a broadly horizontal domain that covers the entire digital substrate on which the modern global economy is built.
“With the almost daily reports of breaches that pop up in the news media, both entrepreneurs and investors have latched onto cyber-security and concluded that it’s a hot area,” Ackerman said.
Allegis Capital Ramps Up Investment in Cyber-Security Firms
For Ackerman, knowledge and understanding, as well as experience are the keys to potential success in cyber-security. “The challenge is that a lot of things get funded that perhaps shouldn’t be funded, and that creates a level of noise in the market that we have to be aware of,” Ackerman said.
Among Allegis Capital’s investments is security vendor Synack, founded by former National Security Agency (NSA) analyst Jay Kaplan. Synack’s business model is focused on helping organizations to find security flaws by enabling a community of researchers. Ackerman noted that Kaplan is the type of entrepreneur that Allegis likes to back because he has been on the forefront of dealing with real-world threats and has a deep hands-on understanding of what security is all about.
“As an investor, the challenge isn’t just in finding a needle in the haystack, it’s in finding a particular piece of hay in the haystack,” Ackerman said. “Domain expertise matters in a significant way.”
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.