Managed Security Firm Arctic Wolf Raises $60 Million In Pursuit Of IPO

The Series D funding will help Arctic Wolf build a war chest so that it’s able to hit the revenue, profitability and cash burn thresholds expected of a newly public company, says CEO Brian NeSmith.

Arctic Wolf has closed a $60 million funding round to help the managed detection and response vendor prepare for an IPO within the next two-and-a-half years.

The Sunnyvale, Calif.-based company said the funding will help Arctic Wolf build a war chest so that it’s able to hit the revenue, profitability and cash burn thresholds expected of a newly public company, according to Co-Founder and CEO Brian NeSmith. Arctic Wolf’s Series D round was led by venture capital firms Blue Cloud Ventures and Stereo Capital.

“This is a statement about our strength and our position in the market, and our ability to grow,” NeSmith told CRN.

[Related: Arctic Wolf Buys Vulnerability Assessment Startup RootSecure]

Prior to going public, NeSmith said Arctic Wolf will need to develop discipline around U.S. Securities and Exchange (SEC) requirements such as quarterly financial reports and managing investor relations. A lot of the Arctic Wolf team has deep experience running public companies, including NeSmith, who previously spent more than a decade as president and CEO of publicly traded vendor Blue Coat Systems.

NeSmith said the company has mapped out the next 10 quarters, and he believes that will provide Arctic Wolf with enough time to develop the necessary operational systems and financial dynamics to go public. The managed detection and response space has the potential to become very large but is highly fragmented today, and NeSmith believes Arctic Wolf is well-positioned to become the market leader.

A handful of security vendors like Carbon Black, Forescout and Sophos ended up exiting the public market just a few years after their IPO due to being purchased by a private equity firm or strategic buyer.

NeSmith believes Arctic Wolf’s situation will be different since many of these newly public companies struggled to maintain a high rate of growth, and therefore needed to adopt a new financing model that provided them with more of an opportunity to fix things. NeSmith said he isn’t opposed to having Arctic Wolf get acquired if the company is able to obtain significant value through such a deal.

NeSmith said Arctic Wolf would consider using some of the proceeds for an acquisition that addresses a need the company’s install base is wishing Arctic Wolf could help them take care of. He declined to specify which technology areas the company is eyeing for a potential acquisition.

From a technology standpoint, NeSmith said the firm wants to build an organization and infrastructure that allows the company to effectively address different customer needs and dynamics at scale. Arctic Wolf today provides enterprise-level managed detection and response capabilities to organizations with anywhere from 50 to 8,000 employees and has moved upmarket as the company has grown.

And as far as the channel is concerned, NeSmith said Arctic Wolf plans to continue investing in cooperative marketing and joint events, allowing partners to build unique capabilities around the company’s offering such as on-site or project-oriented services. The company has a good mix of VAR, MSSP (managed security service provider) and national integrator solution provider, NeSmith said.

“There are things that they can leverage or build off of what we're doing that allows partners to differentiate themselves,” NeSmith said. “And I think that long term, that points to better margin for partners and a stronger competitive dynamic.”