Midrange Security Software Vendors Attract Venture Capital

by Alex Woodie

PentaSafe's latest round of funding was led by Lehman Brothers' Venture Capital Group, and included investments by Austin Ventures, Dell Ventures, EnTrust Capital Frontier Fund, and Pyramid Technology Ventures, all of which previously invested in PentaSafe. New investors included Partech International and Royal Bank of Canada Capital Markets. Houston, Texas, based PentaSafe hoped to go public in 2001, and this latest round of "top off" funding appears to be geared at keeping the company expanding before its stock is offered to the public.

PowerTech's latest round of Series B funding was led by Bellevue, Washington, based SeaPoint Ventures and included about $2 million from Sioux Falls, South Dakota, based BlueStem Capital Company, officials with the Kent, Washington, software provider said.

PowerTech also announced last week that it has hired a new CEO, Bruce Leader, an indication that the young company has successfully reached the next level of maturity and is preparing for more growth. Leader is an industry veteran who came to PowerTech from Syncronex, a venture-backed start-up where he held the title of CEO and still holds a seat on the board of directors. Before that, Leader served as senior vice president at Mosaix, a CRM software vendor that has since been acquired by Novell. Leader held management positions in various IBM divisions, including IBM's AS/400 business, for 21 years.

David O'Neal, who co-founded PowerTech, in 1996, and had held the title of CEO before Leader's arrival a month ago, continues as vice president in charge of strategic sales and business development. O'Neal said it was time to bring in an executive with a broader range of experience. "I was looking for somebody who has software experience, experience in the IBM market, and who can take us to the next level," he said. "We didn't have time…to bring me through a learning curve. We needed somebody like Bruce on board."

PowerTech plans to use a good portion of the $4.3 million in funding to bolster the company's sales channels, including establishing stronger relationships with the leading AS/400 and iSeries resellers in North America, Europe, and Asia. One of the top priorities will be hiring a vice president of sales, Leader says. In past years, 25 to 30 percent of PowerTech's software sales came through the reseller channel, while 70 to 75 percent of the sales came straight through PowerTech. Leader says he hopes to invert those ratios this year.

"iSeries has some of the best customers in the world, and resellers have the best relationships with the customers," Leader said. "They look to them not only for purchases of software and hardware, but for advice" and consulting on how to develop their infrastructures. "We've just barely tapped that channel. It's enormous."

The heightened interest in security is being powered by two elements, Leader says. First, companies that have invested in AS/400 and iSeries technology are gradually opening their mission-critical applications to customers and partners using the Internet. Second, companies' auditors are beginning to ask questions about the security of their systems.

Leader concedes that the bad press Microsoft has received for its seemingly endless supply of security problems hasn't hurt his business, either. "The general hype in the marketplace helps," he says. "Internet security, hackers, and viruses have raised the awareness in the marketplace." But the fact remains that "most breaches--75 percent--occur within the firewall."

That statistic is backed by a recent survey conducted by PentaSafe in cooperation with Computerworld magazine. Announced at the RSA Security Conference in San Jose, California, two weeks ago, the PentaSafe Security Awareness Index report found that most employees were dreadfully oblivious when it came to security awareness. According to the report, which PentaSafe is selling on its Web site for $195, nearly six out of 10 employees who took the test scored a "D" in appropriate security awareness and behavior.