iPolicy Collars $26M Series A

Imagine the U.S. President traveling with a Secret Service security detail that is decentralized. There would be separate teams guarding against snipers, bombs and mortar attacks. And imagine all these agents not talking with one another.

In a sense, this is the way network security is normally done today with different systems often not communicating with another. But Fremont, Calif.-based iPolicy Networks is aiming to change that.

The company, which develops a unified security system for both large and small enterprises, announced last week that it raised more than $26 million in Series A financing.

Clearstone Venture Partners led the round and invested $5 million. It was joined by WK Technology Fund, which invested $7 million and Dali Hook Partners. Other institutional investors include the Entrepreneur Fund and Dot Edu Ventures. Individual investors in the round include Prabhu Goel, iPolicy’s chairman and CEO; Atiq Raza of the Raza Venture Fund; and Redwood Venture Partners founder Raj Singh.

PE Week has learned that the round was a down round with a post-money valuation of more than $30 million.

“Security should start to coordinate different parts and centralize the management,” says Jim Armstrong managing director of Clearstone and a member of the iPolicy board. “We do allow for a lot of correlation and analytics. That leads to better intrusion prevention. You have to believe that that’s where security is heading.

iPolicy was founded in 2000 by the merger of Duet Technologies and TunnelNet. TunnelNet had developed security technology, and Duet had received oan investment from Greylock, Morgan Stanley and Technology Crossover Ventures. After merging to become iPolicy, the company acquired a major U.S. carrier, which it has not identified, as a customer.

Research firm Gartner and securities firm SoundView Technology released a study last year predicting a 1.6% increase in IT network security spending in 2004. Research firm IDC predicted a less conservative estimate that IT security spending would increase up to 8% in 2004.

iPolicy also announced last week the launch of two new security systems. The company’s products provide network security and run simultaneous security operations.

With its latest product launch it can now provide security services for a larger cross-section of customers.

“We are able to serve the small to mid-size space as well as the large carrier space,” says Goel. “That was the basis of our being able to raise the very large funding that we raised.”

As part of the funding deal, Paul Dali of Dali Hook and Robert Puette of WK Technology Partners join Armstrong on the company’s board of directors.

The company will utilize most of the funding for sales and marketing efforts. It will also earmark resources for working capital and for product development.

iPolicy has 140 employees, mostly located in facilities near New Delhi, India. The company expects personnel growth over the next year, says Goel.

Investors and management have no plans to hold a Series B and expect the company to be cash flow breakeven by the middle of 2005.