Arbor Keeps Internet Safe with $22M

In simpler times, denial of service attacks were isolated hacker efforts aimed at temporarily disabling online kingpins like Yahoo and eBay. According to a recent study by the FBI and the Computer Security Institute, however, such assaults were detected by 40% of all corporate, government and educational institutions in the past year.

Along with an increased number of DOS attacks has come an emerging cavalry of technology start-ups with promises of Web site and network protection.

“There are eight to 10 different companies in this space, some of which have actually introduced products and are trying to gain traction,” says an information security analyst. “No one is cash-flow positive, and [even] those with products are clawing at each other for each and every deal.”

One of the primary differentiators at this point is how much venture capital each company has raised, and which firms did the investing. Arbor Networks Inc., for example, today will announce that it recently secured $22 million in its second round of venture capital funding. The round includes small commitments from such strategic players as Comcast Interactive Capital and SAIC Venture Capital Corp.

The oversubscribed Series B offering was split out over two tranches, with the $18 million “financial” piece closing in March, and the $4 million “strategic” piece closing at the end of June. Thomas Weisel Venture Partners led the deal, and was joined by new investors like Ironside Ventures and EDF Ventures, alongside Series A backers Battery Ventures and Cisco Systems Inc. The term sheet granted Arbor a $47 million post-money valuation, which qualifies the deal as a flat round since the Lexington, Mass.-based company received a $25 million valuation after its $11 million Series A deal in 2000.

“If you were able to normalize the markets backward to 2000, this really would have been an up-round [in terms of valuation],” explains Todd Dagres, Battery Ventures general partner and Arbor board member.

Moreover, the $47 million Arbor valuation is in line with what its competitors are receiving from their own venture capitalists. In February, Woodlands, Calif.-based Captus Networks Inc. was pegged at $40 million after completing a $6 million Series C deal, while Seattle-based Asta Networks Inc. also received a $40 million price tag on its $15 million Series B deal last year.

Shakeout Coming

While each of the network availability solution providers has its own proprietary architecture, the end result is not terribly different from one company to another. Each is trying to detect denial of service attacks before they occur, and then recommend solutions to any problems caused by overloaded Web sites and networks. Many of them also protect against worms, viruses and other nasty e-creatures that commonly pester network administrators.

“There are denial of service attacks every hour, so there is a major need for this technology,” Dagres says. “We were at one large carrier and discovered an attack when we plugged in our box. The company had just thought it was a heavy [traffic] load.”

Dagres was able to simply plug in the Arbor box because it sits outside of the actual network, while some other solutions reside on the inside. Other companies, like Cambridge, Mass.-based Mazu Networks Inc., offer customers the choice of inline, offline, or hybrid solutions.

“We clearly see a shakeout within this space, but the winner will be the company that can create the most comprehensive solution while being able to surgically filter the bad traffic out of rest of the traffic,” says Phil London, CEO of Mazu.

New CEO For Arbor

In related news, Arbor Networks will announce today that Thomas Arthur will join the company as CEO. The former ActivCard president was not on board when the Series B deal was closed, but all interested investors were aware that he was on the short list.

“Our plan was always to sign strong customers and get the Series B deal done with our existing management team before bringing on a top CEO,” says Ted Julian, chief strategist with Arbor. “Over the past six months, we’ve closed over $5 million of new contracts and are in the process of getting our technology employed over four top-tier service provider networks in North America. We also closed the Series B deal, so we met our milestones in that regard.”

Contact Dan Primack