NTRU Decodes $26M Series B Round

Until September 11, encryption technology provider NTRU Cryptosystems Inc. was all about encouraging wireless service adoption among consumers. That was the message it pitched to potential investors, and why it was generating revenue from such wireless device makers as Sony Corp. and Texas Instruments Inc.

Following the terrorist attacks, however, NTRU CEO Scott Crenshaw has significantly expanded his firm’s message to include homeland security applications. For example, he feels NTRU can create an airline ticket and luggage tagging system that would prevent a piece of luggage from being loaded onto a plane if the bag’s owner is not also aboard.

But intrigued venture capitalists need no longer apply. Despite a private market clamor for security technologies, NTRU had managed to close out its second round of institutional funding just weeks before the attacks and has no current plans to either reopen the round or raise additional venture capital.

“There was much more demand than we could even fulfill prior to September 11,” Crenshaw said. “The plan was to overcapitalize and just let most of the money collect interest in the bank.”

The oversubscribed Series B round came in at $26.1 million, and was led by Investor AB subsidiary Investor Growth Capital. Other new participants included Lehman Brothers Venture Capital, Granite Ventures, 3i Capital, Macrovision Corp. and Texas Instruments. NTRU also received return commitments from Series A backers Greylock and Sony. To date, the issuer has raised just over $38 million.

What each investor was betting on – at least prior to the past month’s events – was that the NTRU technology could help allay consumers’ fears over conducting financial transactions and other sensitive activities via wireless devices. This is especially true of Investor Growth Capital, whose parent company is so immersed in the wireless space that it is the single largest shareholder of Ericsson.

“We know that security for any mobile community is one of the highest priorities,” said David Lee, managing director of Investor Growth Capital. “If wireless is ever going to reach its full potential, security issues must be solved.”

Many current crypto technologies do not address wireless-specific security because their algorithms were designed with mainframe-type systems in mind and at earlier stages of hacker evolution. Moreover, the barrier to entry for new cryptography companies is prohibitive as it generally involves years of academic research and then even more years of technologists trying to rip apart said research.

NTRU and its investors, however, feel that the company has cleared both hurdles by focusing exclusively on wireless applications for the past six years. It has also taken into account such threats as timing attacks and lost or stolen keys (i.e., advanced access codes) by creating a disposable-key technology that allows for frequent changes in the code.

A Sticky Situation

There is still, however, a possible fly in the NTRU ointment.

Following the Sept. 11 attacks, there has been rampant speculation that terrorist networks have begun communicating via encrypted picture files on the Internet. In response, some pundits and Congressmen have vaguely suggested legislation that would prevent U.S.-based crypto companies from exporting their technologies overseas. Depending on the specifics, this could be problematic for NTRU if it eventually plans a marketing push into Europe and Asia.

Crenshaw, however, seems relatively unconcerned.

“Our view on that is that the cat’s already out of the bag,” he said. “[Restrictive legislation] would be a whole lot more problematic for the economy as a whole than it would be for NTRU.”

Dan Primack can be contacted at Daniel.Primack@tfn.com