Bessemer Venture Partners is one of California’s more successful technology investors, an early backer in the likes of Yelp, LinkedIn and Skype. Lately, the venture firm has taken a particular interest in the Washington area’s cybersecurity scene. Its fund owns stakes in at least 40 cybersecurity companies, and recently added three local companies to its portfolio.
All three — PhishMe, Distil Networks and Virtru — are niche cybersecurity outfits that draw heavily on the region’s three-letter agencies for top talent.
“The engineers in Silicon Valley don’t really understand the anatomy of a cyberattack,” Bessemer partner David Cowan said.
“There are people around [the District] who invented the anatomy of a cyberattack. The only place to find people with operational cyber expertise is within driving distance of [the National Security Agency’s campus at] Fort Meade.”
Big ticket investors tend to see cybersecurity as a chameleonic market prone to quick exits and constant consolidation.
In cybersecurity, “there’s a whole other industry of people who are constantly rendering your product obsolete,” Cowan said. That means older and bigger cybersecurity companies “have to always be buying up start-ups to stay advanced.”
The sector got a jolt of energy after 2014, when a wave of high-profile breaches gave information security professionals newfound C-suite representation. The trend shows no sign of slowing. For Bessemer, the constant churn has yielded eight public offerings and 20 acquisitions.
In the past month, the fund participated in a $21 million round for Arlington-based Distil Networks and joined a $42.5 million investment in Leesburg-based PhishMe. The latest, to be announced Monday, is a $29 million round for D.C.-based Virtru, an encrypted communications app designed by a former NSA engineer.
Bessemer was also an early investor in Endgame, once a notorious seller of “zero day” vulnerabilities in computer systems, so called because the operator of the networks is unaware that the holes exist. (Forbes called it “the Blackwater of Hacking”).
Endgame’s first moments in the limelight came when Anonymous, the vigilante hacker collective, revealed confidential details of its zero day sales business. Then-chief executive Chris Rouland became a controversial figure in cybersecurity, openly advocating that private companies should be allowed to “hack back” against the criminal organizations trying to steal their data.
Bessemer moved Endgame from Atlanta to Arlington and installed one of its own partners, a former Marine named Nate Fick, as chief executive. Under Fick’s leadership Endgame polished its image into that of a defense-oriented cybersecurity firm and distanced itself from the “zero day” industry. The company still has an entire department devoted to “vulnerability research,” but says it doesn’t sell exploits outside the company, instead using them to improve the company’s technology platform.
Today, the company openly capitalizes on its roots in the “offensive” side of hacking. Endgame’s website describes its technology as using “stealth operations” to “hunt” hackers within a company’s network.
“You have to eradicate the adversary without disrupting the core business process,” Fick said of Endgame’s approach.
Bessemer’s newest bet, Virtru, also emerged from the intelligence community. Chief executive John Ackerly was a Bush administration technology adviser. His brother Will was an engineer at the NSA, where he designed an encryption system that the agency used to build walls between different streams of classified data.
Virtru has been around a few years, but this is its first time raising a significant chunk of capital.
The $29 million infusion “definitely dwarfed what we’ve done so far,” co-founder Will Ackerly said.
The small firm makes money charging big organizations for a suite of management services that let employees encrypt their communications while still giving managers a set of tools that can closely monitor the employees’ chatter, decrypting communications when necessary.
The Ackerlys plan to use the new capital to aggressively expand into Europe, but they said they want to keep their headquarters here. The brothers grew up in the District and still run the company out of an office in Dupont Circle.
“People ask me all the time, ‘Why aren’t you in the valley?’ ” Will Ackerly said. “But there would have to be a really clear reason to move, and I can’t think of any.”