29 Dec AllegisCyber Doubles Down on Security Deals
A firm turns a page with its rebranding and sharper focus
AllegisCyber’s managing directors are, from left, Spencer Tall, Bob Ackerman, Pete Bodine and Dave DeWalt.
Wall Street Journal Pro | By Cat Zakrzewski | Dec. 29, 2017 7:30 a.m. ET
AllegisCyber has been investing in cybersecurity companies since 2000. But with a recent rebranding and the hiring of former FireEyeInc. leader Dave DeWalt, the firm previously known as Allegis Capital has zeroed in on the hot sector.
After focusing on Series A deals for many years, AllegisCyber now is investing in startups across stages. The firm is gearing up to raise a new growth fund, which is expected to total $200 million to $400 million, said a person familiar with the plans. AllegisCyber also has been exposed to seed-stage deals through DataTribe, a startup studio in its portfolio that helps engineers leaving the government launch companies.
“It’s about being able to engage with the best cyber entrepreneurs, regardless of the stage of development,” said Bob Ackerman, a managing director at AllegisCyber.
Firm founded in 1996 as Allegis Capital, AllegisCyber is based in San Francisco with additional offices in Palo Alto, Calif., and Fulton, Md.
The firm is focused on cybersecurity startups, from the seed stage through the growth stage. With a startup studio called DataTribe, AllegisCyber identifies holes in the market and then builds startups with engineers leaving government roles to fill those gaps.
The firm has invested in cybersecurity businesses including Callsign Inc., Dragos Inc. and Signifyd Inc.
A string of a high-profile cyberattacks, ranging from the Democratic National Committee email leak to the Equifax Inc. breach, have led to increased corporate spending on security products, said venture investors. Such investors are trying to cash in on that spending, pouring large amounts of capital into security startups. Venture backers injected $2.92 billion into 210 deals in the sector through the third quarter of 2017, surpassing the $2.88 billion invested in 264 cybersecurity deals in all of 2016, according to PitchBook Data Inc.
AllegisCyber is among a handful of investors betting exclusively on cybersecurity businesses. Trident Capital Cybersecurity closed a $300 million fund in 2017, and Ten Eleven Ventures has raised more than $100 million across two cybersecurity-focused funds, according to 2016 filings with the Securities and Exchange Commission.
Mr. Ackerman said AllegisCyber stays competitive by actively building companies that target a need not being addressed in the market. He was, for example, one of the co-founders of CyberGRX, a startup that measures and sets industry standards for security risks. AllegisCyber went on to invest in the company.
Following its experiment with CyberGRX, the firm has repeated the model through the DataTribe incubator, Mr. Ackerman said. Dragos Inc. was the first company incubated by DataTribe. The startup uses technology developed in the intelligence community to secure critical infrastructure. AllegisCyber co-led the company’s Series A funding round.
Because Mr. Ackerman and Mr. DeWalt both sit on the investment committee at DataTribe, AllegisCyber has priority to invest in companies built by the studio. The current DataTribe portfolio includes firmware security company ReFirm Labs Inc. and encryption startup Enveil.
Mr. Ackerman is on the board of Enveil. Ellison Anne Williams, Enveil’s chief executive, said Mr. Ackerman’s investing experience has helped her team transition from working in the intelligence community to building a company.
“He’s been around the block several times,” she said.
At the same time, AllegisCyber is turning more attention to early-stage investments, Mr. Ackerman said the firm increasingly will invest in early-growth companies with the addition of Mr. DeWalt. To date, AllegisCyber has only invested in growth-stage deals of companies it backed in early stages.
But that will change with the new fund.
AllegisCyber’s push into growth investing comes at a time when big, late-stage deals are making up a large portion of venture-capital dollars in the cybersecurity sector. Duo Security Inc. and Cybereason Inc., for example, raised $70 million and $100 million, respectively, in 2017.
Mr. Ackerman said AllegisCyber now will have more access to growth-stage deals because of Mr. DeWalt’s connections.
“We haven’t structured ourselves historically to make investments at that stage,” Mr. Ackerman said.
Mr. DeWalt led his first deal for AllegisCyber last summer, when the firm participated in a $35 million Series A investment for identity authentication company Callsign Inc. Mr. Ackerman said Mr. DeWalt is working on several other deals now.
Write to Cat Zakrzewski at firstname.lastname@example.org