Ex AVG investors build cyber security fund
A group of former executives and investors from anti-virus software-maker AVG is raising a $125 million fund to tap into opportunities in the booming cyber security sector, a founding partner in the fund said.
With the size and scope of cyber attacks on companies growing in recent years, the security industry has seen a steady rise in financing deals and a market Gartner estimates will grow by 8% in 2015 to $77 billion.
Technology investor Richard Seewald, one of the original investors in AVG, said the market for cyber security spending would continue to grow at that pace over the next five years.
He said his company Evolution Equity Partners will seek to triple its investment over that time by tapping US and European companies ready to expand globally.
"We are picking segments where top line growth is exponential," he said. "Large enterprises are not going to stop spending on security software. This spending growth is not going away."
Evolution has secured $70 million in commitments for its new cyber security fund and expects to reach a goal of $125 million by the first quarter of 2016. Investments will likely range from $5 million to $15 million, Seewald said.
The fund will target up to 15 companies, with an eye on their sale or an initial public offering in a three- to five-year period, he added.
The fund's first two investments are SecurityScorecard and Onapsis, which closed a $17 million funding round last week. Boston-based Onapsis, which specialises in securing SAP and Oracle enterprise applications, posted 2014 revenue growth of 130%.
"We are looking at companies... where revenue growth is accelerating and early stage risk has dissipated," Seewald said.
"Often those companies are... at a point where they have been growing rapidly over the last three to five years, raised money from top-flight US venture capital funds and are looking now to go international."
Seewald started Evolution, based in New York and Zurich, along with tech entrepreneur Dennis Smith, former AVG chief executive JR Smith, and AVG's former CTO Karel Obluk.
AVG went public in 2012, raising $125 million in an initial public offering that valued the firm at $870 million.
Seewald said Evolution's experience in the Nasdaq-listed AVG, founded nearly 25 years ago in the Czech Republic, differentiated it from other investment funds circling the sector by providing deeper knowledge of both the United States and Europe.
Research firm CB Insights data shows cyber security financing deals have totalled $7.3 billion since 2010. Some have warned of a bubble although Seewald expects to avoid it.
"We think there are too many feature-driven cyber security companies that are going to be either folded into a larger acquirer or not move forward at all," Seewald said. "That is exactly where we are not investing."