Billion-dollar cyber security start-up Tanium to float

Tanium, a US security start-up last valued at $3.5bn, is set to start working on a flotation on the US stock market in the next six months, despite the volatility of the market in public cyber security companies. The Californian company counts among its customers eight of the top 10 global banks, retail giants such as Walmart1 and Home Depot2 and the US, UK and Australian governments, including their intelligence agencies.

This is a company we will take public in the next 18 months, said Orion Hindawi, Tanium chief executive, in a Financial Times interview.

We have another six months until we start the formal process of filing we have a pretty good beat on which bank we want to work with.

Tanium3 is the largest private company of a new generation of cyber security companies that emerged after antivirus software failed to cope with more sophisticated attacks. The business, based in the Bay Area and co-founded by Mr Hindawi and his father David, sells cyber security software that helps IT departments monitor hundreds of thousands of computers for any vulnerabilities in seconds.

But security companies have suffered on the public markets with Nasdaq-quoted Secureworks, one of the only technology companies to list this year, raising less than expected in its initial public offering in June and falling 11 per cent since its first day of trading. Shares in FireEye, once the golden child of next generation security companies, has fallen 54 per cent in the past year. Palo Alto Networks has lost 7.4 per cent, while Fortinet4 is down 13 per cent. The total number of exits in the cyber security industry rose a third from 2014 to 2015, according to PrivCo, the private company research firm. But the vast majority of these exits are deals5, with private equity companies hunting for older security software makers to milk for cash, while strategic buyers snap up bolt-on technologies and make so-called acqui-hires6 for talented security engineers.

Mr Hindawi said Tanium had grown substantially since its $3.5bn valuation in a funding round in September last year. It is on track to achieve $270m in sales in 2016 an 80 per cent increase from 2015. A quarter of its global revenues comes from governments. Mr Hindawi and his father, who own well over 50 per cent of the company, do not plan to sell their stock in an IPO.

The float would come on the heels of the slowest year for US IPOs7 since the financial crisis. So far, just 68 companies have gone public on US exchanges this year, raising $13.7bn, according to new data from Dealogic. This is about half the number and value of IPOs in the same period in 2015. Tech IPOs have been even fewer and far between: in the first eight months of the year, just one venture-backed tech company, Twilio, went public.

Everybody hates the idea of going public in Silicon Valley and I don t know why, it s not healthy, said Mr Hindawi.

Companies such as Uber and Airbnb, with valuations of $68bn and $30bn respectively, are conspicuously staying away from public markets. I know the CEOs of a lot of these companies they think their creativity would be diminished. I m not sure I understand that ethos, added Tanium s chief.

Twilio s IPO8, which raised more money than expected, was a heartening sign for other billion-dollar technology start-ups like Tanium. Two others, Apptio and Nutanix, took the plunge in September. Twilio s market capitalisation of $1.2bn at listing was higher than its private valuation, and it is now worth $5.8bn.

Tanium has been cash flow positive since it launched commercially in 2012 and has 50 of the Fortune 100 on its roster of customers. Almost 99 per cent of these renew their subscriptions year-on-year, it says. Tanium was one of the largest investments made by venture capital firm Andreessen Horowitz, which invested $142m, almost half the total capital of $300m it has raised. Other investors9 include TPG, Institutional Venture Partners and T Rowe Price.

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References

1. ^ Walmart (markets.ft.com)
2. ^ Home Depot (markets.ft.com)
3. ^ Tanium (www.ft.com)
4. ^ Fortinet (markets.ft.com)
5. ^ deals (www.ft.com)
6. ^ acqui-hires (www.ft.com)
7. ^ the slowest year for US IPOs (ftalphaville.ft.com)
8. ^ Twilio s IPO (www.ft.com)
9. ^ Other investors (www.ft.com)