Fortinet's Money Machine Rolls On

Eight months after a $30M Series D, the security appliance company grabs $50M more

March 3, 2004

3 Min Read
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Partying like it's 1999 again, appliance vendor Fortinet Inc. picked up $50 million in funding today.

That's in addition to $30 million raised in August, bringing the startup's total funding to $93 million (see Fortinet Score $30M Funding Round). The $50 million mezzanine round was provided mostly by previous investors, including Acorn Campus, DEFTA Partners, Meritech Capital Partners, and Redpoint Ventures.

Either round would be impressive on its own these days (for comparison, see the "Funding for Startups" section in the Light Reading archives). But the combined $80 million in an eight-month period signals the high prospects investors see in the security business.

Specifically, there was that $4 billion offer Juniper Networks Inc. (Nasdaq: JNPR) made for NetScreen Technologies Inc. (Nasdaq: NSCN) (see Juniper Buys NetScreen). On top of that, Fortinet has success in its genes -- its founder Ken Xie, also founded NetScreen and could probably raise money by sneezing into a napkin.

It's tempting to think that Fortinet is headed for a NetScreen-sized payoff. But the most likely sugar daddy, Cisco Systems Inc. (Nasdaq: CSCO), isn't necessarily interested, analysts say."Cisco should be very interested in Fortinet," says Eric Ogren, Yankee Group analyst. But Cisco might prefer to stick to its PIX series of firewalls rather than pick up the new technology, he says. Prudential Equity Group LLC analyst Inder Singh agrees, having written that Cisco, with its own stash of security technology, isn't likely to acquire something just to counter Juniper.

Richard Kagan, Fortinet vice president of marketing, says no such deal is pending; rather, Fortinet simply needs the money to continue its growth ramp of 50 percent per quarter. "To grow at that clip takes cash," he says.

He adds that the funding wasn't spurred by the Juniper-NetScreen deal, as negotiations began before that deal was announced. "There was no event that occurred that drove this financing," he says. "The board is just convinced there should be no constraints to our ability to grow."

Even without Cisco circling, Fortinet would do well to plan for an eventual acquisition. "Ninety-nine out of 100 security companies that have hardware products are going to be bought," Ogren says, with potential acquirers including Cisco, NetScreen (even inside Juniper), Network Associates Inc. (NYSE: NET), Nortel Networks Corp. (NYSE/Toronto: NT), and Symantec Corp. (Nasdaq: SYMC).

Fortinet's hardware-based firewalls are focused on content-based security, such as scanning for viruses. They also include features for VPN support and intrusion detection. The appliances sit at the periphery of the LAN, scanning traffic as it arrives."Some of the vendors are looking that way, but I think Fortinet is out in front of the curve," Ogren says. The market is attracting "some of the big players, which will give the space some more credibility."

Craig Matsumoto, Senior Editor, Light Reading

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