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Elemental Security gets $11M
June 20, 2005
by Paul Bonanos
Courtesy of The Deal
Just three months after it revealed its first two rounds of funding, security compliance software maker Elemental Security Inc. of San Mateo, Calif., has turned to venture investors for yet another round.
Lehman Brothers Venture Partners of New York joined Elemental's investor syndicate, leading an $11 million third round that also included contributions from prior investors Bessemer Venture Partners of Wellesley Hills, Mass., and Mayfield Fund and Sequoia Capital of Menlo Park, Calif.
The new deal comes just under a year after Sequoia led Elemental's $7 million second round. Bessemer and Mayfield led the startup's $3 million first round in 2003.
Chief executive Peter Watkins said the company's valuation rose between the second and third rounds but would not provide further details. He added that Elemental initially sought less than $11 million but raised the dollar amount as the terms of the deal were hammered out.
The funding also closed far more quickly than the startup expected, according to Watkins. He said the company had the opportunity to choose from multiple formal offers but selected Lehman Brothers for its breadth of expertise and familiarity with the product.
Although they are not officially customers of Elemental, Lehman's information technology department has used the startup's product in an evaluation program. "Our contacts in Lehman Brothers' IT department were very helpful in completing the deal," Watkins said.
Elemental's software product allows information technology professionals to manage, monitor and enforce security policies throughout company networks. The software works with a variety of security products, including firewalls, antivirus applications and virtual private networking systems.
Although some of the new capital is earmarked for continued product development, Elemental will spend most of it on sales and marketing initiatives, mostly in the U.S. The startup has signed up at least half a dozen customers since introducing its first product earlier this year. Watkins said that at least 30 potential customers are in Elemental's pilot program right now.
Although Elemental had intended to rely chiefly on direct sales, Watkins said reseller opportunities are currently appearing more quickly than expected. The 35-person company will hire some new sales and marketing staff but is unlikely to grow beyond 45 people by year's end, Watkins said.