Vericept Gets New ID $8.5M

After deciding that its name didn’t quite capture the essence of its business model, eSniff Inc. recently changed its handle to Vericept Corp. The Denver-based company, which has developed a plug-and-play network security device designed to crack down on computer network abuses, also wrapped up the second tranche of its Series B round last week, raking in a total of $8.5 million.

The company closed the initial portion of the round back in April, netting $3.5 million from Sequel Venture Partners. Although Sequel originally set the terms of the deal, Sigma Partners put up $5 million in the second tranche, making it the lead VC backer.

Although just two investors participated in the round, Vericept actually took more money than it will need to reach cash flow positive next year, said John Conlin, Vericept’s chief operating officer.

In fact, when the Series B transaction closed, seven VC firms besides Sigma were still doing due diligence on the company.

They may or may not have a chance to carve a stake in Vericept in the future, as Conlin said the company is still unsure whether or not it will pursue an additional round of venture capital in the coming months.

“We can control our own destiny in terms of how fast we want to grow the business,” he said. “It’s not necessary for us to raise another round, but I’d love the private equity market to change a little bit [so we could]. We have so much worldwide potential, and it’s difficult to watch opportunities spring up around the world and not have the resources to execute on those.”

Vericept also may be reluctant to take another dip in the private equity pool down the road because it did not receive a favorable valuation following its Series B round as a result of plummeting valuations across the board in the sector. As such, Conlin declined to disclose the company’s post-money worth, saying only that he wished it was higher.

To date, Vericept has raised approximately $10.5 million in venture capital financing.

On-Call Watch Dog

Unlike most network monitoring companies, Vericept offers a device to enterprises and schools that essentially acts as a smart surveillance camera – it activates only when network users go out of their company’s predefined boundaries. Using linguistic analysis, Vericept’s technology monitors all forms of network activity for violations of organizational policies such as sending potentially offensive e-mails or surfing pornographic Web sites during work hours.

What is more, Vericept’s hardware-based monitoring device is easy to install and plugs directly into a company’s network, as opposed to other software-driven solutions that may be much more difficult to integrate into an existing network.

In April, the company seemed to have a commanding lead in its chosen space, as few competitors, which in the past offered only blocking and filtering devices that prevented users from accessing previously restricted Web sites, had caught on to its business plan.

That lead is narrowing, however, as more of its peers begin discussing new and different ways to encroach on Vericept’s territory, Conlin said.

“The good news is, we’re still currently the lone wolves in the space,” he added. “If you look at the umbrella of things that happen on a network, everyone has virus protection and a firewall. The last piece of the puzzle is having control of the network within the organization, which is where we come in. The bad news is, we see a lot of people talking about heading to the space.”

Nonetheless, the company continues to add 40 to 50 customers per day, and despite a drop-off in sales in September and October following the terrorist attacks, Vericept posted record sales revenue in November, Conlin said.

Robyn Kurdek can be contacted