Seattle cybersecurity startup ExtraHop to be acquired by private equity firms in $900M deal

From left to right: ExtraHop CTO and co-founder Jesse Rothstein; CEO Arif Kareem; Chief Customer Officer and Co-Founder Raja Mukerji. (ExtraHop photo)

Private equity firms Bain Capital and Crosspoint Capital will acquire cybersecurity startup ExtraHop for $ 900 million. It’s one of the largest acquisitions by a Seattle area tech startup to date, and it’s coming amid heightened cybersecurity concerns across all industries.

Using machine learning to help businesses prevent, detect and eliminate threats on their networks, ExtraHop operates in a rapidly growing cybersecurity sector known as “Network Discovery and Response”. It has around 1,000 customers including The Home Depot, Concur, Seattle Children’s, Ulta Beauty, and others. The 14-year-old, which has historically hinted at an IPO, had recurring annual revenue of $ 100 million in the first quarter and expects that metric to grow 40% this year.

Cybersecurity has been in the spotlight over the past year, and particularly in recent months, as major attacks targeted various companies such as the meat industry, tech giants, federal agencies, and a large gas pipeline. The pandemic also provided new hacking opportunities as businesses relocated online and cybercriminals took advantage of the health and economic distractions.

“Businesses today are faced with a variety of incredibly sophisticated cyberattacks with a variety of motives, ranging from theft of sensitive personal and business information to illegal profits,” CEO Arif Kareem said in a statement. “Attackers have long had an advantage, and we made it our business to change that.”

Kareem said the deal, expected to close this summer, will accelerate growth and help customers “protect their operations from even the most advanced threats.”

Kareem and the company’s co-founders, Jesse Rothstein and Raja Mukerji, will remain in their respective leadership roles. ExtraHop employs more than 500 people; they stay with the company. ExtraHop will continue to operate under its own brand.

Mukerji and Rothstein remain minority investors in the company. The co-founders were both senior architects at Seattle Networking and security giant F5 Networks before launching ExtraHop in 2007. The company started out as a provider of IT operations analytics and later added cybersecurity capabilities for on-premise and cloud environments. Kareem joined ExtraHop in 2016 after holding leadership positions at Tektronix and Fluke Networks.

“We believe that network discovery and response is the next big cybersecurity segment and that ExtraHop offers the best enterprise technology in this space,” said David Humphrey, managing director at Bain Capital Private Equity, in a statement.

ExtraHop had raised $ 61.6 million to date, and its final injection of cash was a $ 41 million Series C round led by Technology Crossover Ventures that later pulled out of its investment. Other investors include the Madrona Venture Group, which led a seed round in 2007 and the Series A round in 2009; Meritech Capital Partners; Isilon co-founder Sujal Patel; and other. Marc Andreessen and Ben Horowitz from Andreessen Horowitz invested as angels in 2009.

Madrona CEO Matt McIlwain said the acquisition was a “strong return” for the Seattle-based venture capital company. He first met Mukerji and Rothstein at an event in 2007 and praised the co-founders for their long-term approach to building a business.

“They had a clear vision of what businesses need for the performance and reliability of their mission-critical applications,” said McIlwain, ExtraHop board member. “Over time, they found that their skills can solve corporate security problems and that has become the core of their business.”

ExtraHop ranks 15th on GeekWire 200’s list of the best startups in the Pacific Northwest. There were an unknown number of layoffs in April 2020.

Bain used its flagship $ 11.8 billion fund to acquire ExtraHop; Crosspoint invested from its $ 1.3 billion fund, which focuses on the cybersecurity, data protection and infrastructure software sectors.