A Unicorn Is Born: Zscaler Raises $100M And Snags A $1B Valuation

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It has been a good year to be a cybersecurity entrepreneur — and business is booming since cybercriminals have had a busy and productive year and a half.

But if there can be an upside to criminal activity, it has carried with it a flood of love, attention and dollars from investors hoping to get in on the ground floor with the company that builds the best digital mousetrap, so to speak. The market for cybersecurity was estimated at about $71 billion in 2014 — a sum expected to more than double to $155 billion by 2019.

Last year, funding blasted past the $2 billion barrier across 269 deals. And, so far, 2015 shows all signs of leaving 2014 in the dust in both the number of deals and the number of dollars. At the halfway mark of 2015, investments in cybersecurity totaled about $1.2 billion, up from the $771 million invested by the middle of 2013.    

Some of the highlight deals of the years so far?

SingTel (southeast Asia’s largest telco) acquired Chicago-based managed security services provider Trustwave for a whopping $810 million.

In April, enterprise security startup Illumio snagged $100 million from investors like Morgan Stanley, BlackRock, Accel and Plantronics in a Series C round.

Just two weeks ago, Google Ventures led the $100 million Series C bet on CrowdStrike, a Software-as-a Service (SaaS) based endpoint protection platform.

And right on the heels of CrowdStrike’s announcement comes the latest $100 million round, though this time it is a Series B and going to Zscaler — bringing the firm’s total fundraising to $138 million and its valuation to $1 billion.  

Zscaler has just joined the unicorn club, and its CEO and founder, Jay Chaudhry, couldn’t be happier.

“Our mission is to make the Internet safe for business by delivering an amazing security platform that protects our clients and enables the strategic adoption of cloud computing, mobile devices and the Internet of Things,” said Chaudhry. “The investment and partnership from TPG and the global relationships and experience they provide will enable us to accelerate investment in our technology, grow our customer base and aggressively scale our business to meet growing demand. We are excited to join an elite group of security companies valued in excess of $1 billion.”

Chaudhry himself is something of an unusual figure in the world of tech. The serial entrepreneur was born and raised in a small Himalayan village, where he admits tech entrepreneur was not exactly a common aspiration. But a different perspective has served him well, he notes, and allowed him to “think past the box” when it comes to providing truly cloud-based security.

“The old technology based on appliances is not really relevant,” Chaudhry noted. Hardware, he said, is the wrong way to go about securing a network’s endpoints — and, he believes, companies that rely on it are facing a troubled future.

“When business happens in the cloud, you need security in the cloud,” he noted.

And Zscaler is not even a little bit kidding about the “break free from appliances” stance. In fact, the firm enjoyed a good deal of buzz at the RSA 2015 conference by giving customers a chance to literally and physically vent their frustrations with security devices.

With baseball bats and sledgehammers on the tradeshow floor.

And while iZscaler’s methods of promotion are colorful, they are also attracting plenty of interest. The company works with 5,000 companies today — double the number from a year ago — and that list includes some very big names like NBC Universal, Humana, Exxon-Mobile and the U.K.’s National Health Service.  

The way their SaaS solution operates is placing its platform between corporate networks (and affiliate mobile devices) and the cloud. By passing their traffic through Zscaler’s checkpoints, the startup can screen and scrub the traffic before it ever touches a corporate network.  

“We see tremendous opportunity in the rapidly growing cybersecurity industry, and after spending significant time in the space, we found Zscaler to be the leading cloud-based security solution for the world’s largest and most demanding customers — a true SaaS platform like that of Salesforce or Workday,” said Nehal Raj, a partner at TPG — and now a Zscaler board member when the funding was announced.  

TPG led Zscaler’s most recent round, and their involvement is a high profile get for the rapidly expanding security startup. TPG has in the past financed other high-profile players such as Uber, Airbnb and Box.

“We are looking forward to partnering with Jay and his team to accelerate growth, most immediately by introducing Zscaler to the potential customers and channel partners within our global network,” Raj said.

According to Chaudhry, the next move from this big financing round is toward worldwide expansion, as well as increased hiring in engineering so that their product can continue to develop.

Zscaler faces an undeniably tough market — one populated with well-financed startup players and long-established giants like Symantec and Cisco. But Chaudhry is not bothered by the competition so much as he is engaged by it.  

“I think if I were an appliance company, I would be worried,” he said. “We built in the cloud for the cloud and we’re seeing tremendous growth. Are we worried about it? Not really.”

[/vc_column_text][vc_text_separator title=”July’s last week: One firecracker in freight, and a few smaller deals” title_align=”separator_align_left” align=”align_center” color=”grey”][vc_column_text]The final week of July saw continued deal-making in the logistics space, with a few smaller investments in security, thus wrapping up the month with an extension of trends already in place.[/vc_column_text][vc_text_separator title=”Coyote caught” title_align=”separator_align_left” align=”align_center” color=”grey”][vc_column_text]The biggest investment in the week came as Coyote Logistics was snapped up by UPS for $1.8 billion at month’s end. As reported last week, Coyote gives UPS some additional freight hauling capabilities, in part with the addition of a brokered fleet of as many as 35,000 trucks. The deal to buy Coyote means that UPS should get some additional scale amid holiday demand and other periods of increased shipping.

And as has been the case in previous weeks, the biggest, billion-dollar plus transactions have dwarfed the next largest deals, and this time around we saw a $119 million round of Series B funding go to Behalf, a payments startup. The company provides working capital to small businesses. The $119 million in capital is being slotted toward growth, mainly through increased credit lines (currently up to $25,000 per purchase, and Behalf covers any cash gaps). This funding announcement underscores the increasing interest, and commitment, of private equity toward alternative lending platforms.

Envision Ventures gathered up $100 million in an evergreen fund last week, with an eye on investing in tech companies, specifically software outlets in the Big Data and Internet of Things (IoT) arenas.

Rounding out the triple-digit deal space (i.e., with values of at least $100 million), Sansa Security, an Israeli firm, was bought by chipmaker ARM Holdings for $85 million.  ARM did the deal in order to bolster its position in IoT, with software and hardware protection embedded in devices.

Below is a summary of the Top 5 deals for the week as measured by transaction value.[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2ZpZnRoX3dlZWtfb2ZfanVseV9tdGRfX3RoZV9yZXRhaWxfYW5kX2NvbW1lcmNpYWxfcGF5bWVudHNfdG9wXzUlMjIlMjBzcmMlM0QlMjIlMkYlMkZlLmluZm9nci5hbSUyRmpzJTJGZW1iZWQuanMlM0ZMS1UlMjIlMjB0eXBlJTNEJTIydGV4dCUyRmphdmFzY3JpcHQlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[/vc_raw_html][vc_column_text]And drilling down a bit, we can see traction in FinTech, which, when the data is “smoothed” to exclude the largest deals, still shows an upward trend over the past several weeks. That can be seen in the average weekly tally (total, not average deal size) that has moved from roughly $200 million to $300 million, but not, of course, in a straight line.[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2Z1bmRpbmdfYnlfc3RhZ2VfX3RoZV9yZXRhaWxfYW5kX2NvbW1lcmNpYWxfcGF5bWVudHNfdG9wXzUlMjIlMjBzcmMlM0QlMjIlMkYlMkZlLmluZm9nci5hbSUyRmpzJTJGZW1iZWQuanMlM0ZXN2olMjIlMjB0eXBlJTNEJTIydGV4dCUyRmphdmFzY3JpcHQlMjIlM0UlM0MlMkZzY3JpcHQlM0U=[/vc_raw_html][vc_text_separator title=”In FinTech, data and security are dominant” title_align=”separator_align_left” align=”align_center” color=”grey”][vc_column_text]And getting a bit more granular: Security and analytics have seen the biggest transactions within FinTech, with weekly totals below (and again, with a glimpse of the rolling average excluding large deals).[/vc_column_text][vc_raw_html]JTNDc2NyaXB0JTIwaWQlM0QlMjJpbmZvZ3JhbV8wX2Z1bmRpbmdfaW5fZmludGVjaF9fdGhlX3JldGFpbF9hbmRfY29tbWVyY2lhbF9wYXltZW50c190b3BfNSUyMiUyMHNyYyUzRCUyMiUyRiUyRmUuaW5mb2dyLmFtJTJGanMlMkZlbWJlZC5qcyUzRlZVaCUyMiUyMHR5cGUlM0QlMjJ0ZXh0JTJGamF2YXNjcmlwdCUyMiUzRSUzQyUyRnNjcmlwdCUzRQ==[/vc_raw_html][vc_column_text]One would be hard-pressed to be surprised by this table, as both strategic buyers and venture capital companies have been scrambling to get mass and scale in security, with seemingly daily headlines trumpeting yet another data breach. As for analytics, measuring everything from marketing to customer satisfaction to supply chain management has become increasingly critical to business operations across small and large enterprises.

Moving on to B2B, the fleet management and logistics subsectors have been heavily weighted over the past several weeks – witness the GE deal earlier this year. Even this past week has added some continued firepower to the B2B trends.[/vc_column_text][/vc_column][/vc_row]

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