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Elemental Security raises $10M
By Paul Bonanos
April 4, 2005
Courtesy of The Deal
Security and compliance systems developer Elemental Security Inc. of San Mateo, Calif., has introduced its first product and revealed that it raised $10 million in two rounds of venture funding.
Three firms - Bessemer Venture Partners of Wellesley Hills, Mass., and Sequoia Partners and Mayfield, both of Menlo Park, Calif. - have quietly backed Elemental since its founding in December 2002. Chief executive Peter Watkins said the company raised an initial $3 million from Bessemer and Mayfield in May 2003, then completed a $7 million second round with Sequoia as leader in July 2004.
Elemental executives decided to withhold announcement of the funding and formal introduction of both the company and its first product until Elemental had already signed its first customers, Watkins said. Watkins, a member of Elemental's board of directors who was hired as CEO following the completion of the second round, could not confirm whether the company received multiple term sheets in the second round.
But he did say the financing was completed quickly, and that the company's founders spoke with a broader field of potential investors than it did when it raised the first round. Watkins would not give Elemental's valuation but confirmed that it had risen between the first and second rounds.
Elemental's software product allows information technology professionals to manage, monitor and enforce security policies throughout company networks. Watkins said that although most companies have a variety of security products, including firewalls, antivirus applications and virtual private networking systems, few can successfully deploy all of the security and regulatory policies they wish to institute.
Elemental has already signed up a half-dozen customers and expects to land several more midsized and regional organizations now that the product has been formally introduced. The company's sales force has thus far targeted the financial services, healthcare and technology industries, through direct sales and channel marketing programs.
The next-generation version of the product will be unveiled in about a month, Watkins said. Much of the new funding is earmarked for sales and marketing initiatives related to the company's launch and new products.
While Elemental has no direct competitors, Watkins conceded that several other companies' products overlap with Elemental's. Those include BindView Corp. of Houston, Symantec Corp. of Cupertino, Calif., and NetIQ Corp. of San Jose, Calif.
The company now has 35 employees and expects to grow "modestly" in the next year, according to Watkins. He would not discuss the company's cash burn rate directly, nor would he say how quickly its revenue is growing.
Watkins said the company had not yet begun fundraising for its third round but that he expects to complete another round in about six months. According to Elemental's plans, that funding would be expected to carry the company through to positive cash flow.
Mitch Zuklie, now of Orrick, Herrington & Sutcliffe LLP, is the company's outside counsel. He assisted Elemental during both rounds of fundraising, first with Venture Law Group of Menlo Park, Calif., then with Heller Ehrman White & McAuliffe LLP of San Francisco after it acquired Venture Law Group.