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The Daily Deal Net security firm Counterpane pulls in $20M by Clifford Carlsen Posted 03:36 EST, 14, Jan 2003 Antihacking software and services company Counterpane Internet Security Inc. found a safety net of its own Tuesday, Jan. 14, landing $20 million in fresh capital to carry it to profitability and allow for possible acquisitions. The 4-year-old provider of information technology monitoring and protection services recruited strategic investor Comcast Interactive Capital of Philadelphia and Meritech Capital Partners of Palo Alto, Calif., to lead the deal, which brings total funding of the company to $78 million. Previous investors Accel Partners and Bessemer Venture Partners of Palo Alto, Dell Ventures of Round Rock, Texas, Morgan Stanley Venture Partners of New York and Symphony Technology Group of Palo Alto also joined. Not reinvesting in the startup were Goldman, Sachs & Co. and Amerindo Investment Advisors of New York. The new money is the first capital call the company has made since November 2000, when it raised $24 million in a deal led by Amerindo just months after raising $24 million in a deal led by Goldman in March. The company was able to make that money last while it retooled its business away from serving dot-com companies to focus more tightly on enterprise security. But the startup opted to raise the new cash now to take advantage of a changed industry landscape. "We really need very little operating cash to run the company," said Counterpane CEO Tom Rowley. "But we see quite a bit of strategic opportunity and wanted to have a war chest for possible acquisition of products and customers, and for international expansion." Rowley would not say how the new round values the company, or how much of a discount it represents from the previous round. But he characterized it as a good deal given the changed investment climate. Although the new round valuation was down, investors maintained pro rata positions. Options were also adjusted to maintain a stake by management and employees. "Valuations have all changed, but as long as you get management to have appropriate ownership and investors buy pro rata stakes, it doesn't mean much." Rowley said. "It's always good to get realigned to the market." Rowley was equally philosophic about the stratospheric valuation the company posted at the height of the tech bubble. "Those days are over," he said. "They're like hazy dreams of drunken parties now, and they don't have much to do with today's world." Counterpane enlisted the Boston investment bank SG Cowen to help land an outside lead, to provide an independent valuation to the deal and to bring some strategic value. Doug Collom of Palo Alto law firm Wilson Sonsini Goodrich & Rosati counseled Counterpane. Counterpane emerged in the dot-com bubble along with competitors Predictive Systems Inc. of New York, Para-Protect of Centreville, Va., and Telenisus Corp. of Rolling Meadows, Ill. But Rowley said there were once about 50 companies offering monitored Internet security. Now, though, most of those companies have been sold or gone under, he said, leaving no significant startup competition. Only IBM Corp. 's Global Services unit is a significant challenger. For its part, Rowley said that at the peak of the boom, all of Counterpane's customers were dot-coms, but now its customer list is composed entirely of the information-technology departments of companies he would not disclose. Rowley insisted, though, that investors in the new round were attracted to his startup based on its customer lists. He added that the potential of the industry was also a draw. Security software is often cited as a top priority in corporate surveys, and it has become more important because of broader global security unease. While IT spending has been depressed in many sectors, security spending was up 18% to $6 billion in 2001, according to the research firm IDC Corp. of Framingham, Mass. IDC projected similar growth for the year just ended. Rowley said new strategic investor Comcast came into the deal to apply Counterpane's expertise to Comcast's growing broadband services business. But the investment arm of the cable company also judged the deal from an investment standpoint, said Sam Schwartz, senior managing director of Comcast Interactive Capital. "Counterpane's services are delivering tremendous value to their customers," Schwartz said in a statement. "Counterpane's growth and strong relationships with its customers, channel partners and industry analysts convinced us that Counterpane represents an excellent investment opportunity." Rowley also would not disclose Counterpane's revenues, but claims the company reported record revenue and bookings through December and the fourth consecutive record quarter of growth over 30%. He cited its so-called channel sales strategy, or working with partners to resell services, as contributing to its growth. That strategy has cut the company's sales cycle from six months to less than 90 days, he said. -- ----------------- R. A. Hettinga <mailto: [EMAIL PROTECTED]> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' --------------------------------------------------------------------- The Cryptography Mailing List Unsubscribe by sending "unsubscribe cryptography" to [EMAIL PROTECTED]