Telstra has joined Luxembourg-based venture capital firm Redline Capital and other strategic investors in a $US41 million ($57 million) funding round for Silicon Valley security start-up vArmour.
The California-headquartered vArmour, which was founded in 2011, provides data centre and cloud security to protect companies from hackers.
Telstra Ventures invested between $5 million and $10 million in the funding round, however the telecommunications giant would not disclose how much of vArmour it owns after the transaction.
Redline and Telstra were the largest of more than 20 investors in the capital raising. vArmour has now raised a total of $US83 million. Existing investors include Citi Ventures, Allegis Capital and Columbus Nova Technology Partners, among others.
Speaking to Fairfax Media from California, vArmour chief executive Tim Eades said he anticipated that this would be the final round of funding needed and hopes to float the company in future.
"This quarter, we'll hit about 200 enterprises using our product in some way, shape or form, you hope to hit 450 or so this year, and if you can do that in a frictionless way, we're still only 135 or so employees, it shows you you've got a good model. But we're still learning how to go to market, we're still dialling it in. But yeah, I think we should [list]," Mr Eades said.
Funding for tech start-ups in the United States has cooled off over the past 12-18 months, as venture capitalists look to invest in companies that are generating revenue and moving towards being cashflow positive.
Mr Eades said vArmour turned cashflow positive briefly last year before it started a hiring spree. Its sales team has doubled in size in the past three months and the company now has 135 employees. He expects the new funding to spur growth to allow the business to be cashflow positive late this year or early 2017.
"I think it's healthy what's going on in North American venture funding. People were raising money on fluff and ideas and very good demos. We raised money very easily because we do real stuff for real people," Mr Eades said.
"We protect the critical national infrastructure of parts of the US, parts of the government, parts of the London financial system, and when you do real things for real people, and you're growing – we used to install four to five customers per quarter, now we install about four to five a week – but you're doing real stuff. If you're doing real stuff, raising money shouldn't be hard."
US uncertainty
The company earns 60 per cent of its revenue outside the United States.
Mr Eades said another reason for raising money now, rather than down the track, was an uncertain economic and political environment with the possible exit of Britain from the European Union and the chance of a Donald Trump presidency in the US.
"The political economic climate is really topsy-turvy right now. London might vote out of the European Union, which would put London, which is arguably the financial capital of the world, in a backwater for a year," he said.
"You have Trump v Sanders v Clinton going on in North America and nobody knows what's going to happen if some of these people get into power."
Mr Eades said Telstra contacted vArmour around 16 months ago, and the two companies had since decided now was the time for the telco to invest.
"We literally went for a walk around San Francisco, having a chat about 15-16 months ago and we built the relationship over time. They were keen on investing, we were keen on having them, but we both had to get to the right point where it made sense and that time is now," Mr Eades said.
Telstra plans
Telstra and vArmour will work together to building cloud services security offerings to protect data centres in Australia.
"Historically, if you're able to penetrate the data centre in one way, you can get into many other parts of it. Once you have that violation, it creates an opportunity to backdoor your way into other hosts and applications," Telstra Ventures managing director Mark Sherman said.
"What particularly attracted us to vArmour is that what they do is basically provide a way to segment data centres into micro services. What that means in English is once you penetrate the data centre, maybe you'll be able to breach one aspect, or one application, or one host, but then all the other services are not broached or broken."
Mr Sherman said vArmour was the 30th investment that Telstra Ventures had made – the telco looks at more than 1000 companies per year and invests in around 10.
Telstra will look to start bringing vArmour products to its customers across Australia and there is an opportunity to expand that into the telco's Asia ventures.
"[vArmour] have got five of the 10 largest telcos in the world, they've got three US government agencies, they've got a bunch of retailers, a bunch of top 10 global banks and healthcare providers," Mr Sherman said.
"Every board member of every major company in Australia should be thinking about what their security strategy is and they should be thinking about working with companies like vArmour to protect themselves."
