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Fortinet Score $30M Funding Round

Light Reading
News Analysis
Light Reading
8/26/2003
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The funding environment is still tight, but at least one startup is getting a cash infusion.

Fortinet Inc., a firewall and antivirus appliance startup, announced this morning that it has raised $30 million in its fourth round of funding. The company has raised a total of $43 million so far. Its previous funding round of $9 million was announced in July 2002 (see Fortinet Gets $9M, Names Veeps).

“Thirty million dollars is impressive,” says Eric Ogren, senior analyst with Yankee Group. “The fact that it has products shipping and real revenue certainly helped, I’m sure.”

Fortinet competes with a whole gaggle of security companies, including Cisco Systems Inc. (Nasdaq: CSCO), Check Point Software Technologies Ltd. (Nasdaq: CHKP), and NetScreen Technologies Inc. (Nasdaq: NSCN).

The funding round is likely to heat up the rivalry developing between Fortinet and competitor NetScreen, which also makes an ASIC-based security appliance. The two companies share a common heritage. Fortinet’s current president and CEO, Ken Xie, was also one of the founders of NetScreen. While at NetScreen, he served as the company’s president and CEO.

The round was led by Redpoint Ventures. Meritech Capital Partners also came on board as a new investor. Existing institutional investors also participated in the round.

Fortinet launched its first product back in May 2002 (see Guarding the Gigabits). Since then, company executives say it’s shipped more than 15,000 appliances. Richard Kagan, vice president of marketing for the company also claims that it’s been increasing its revenues by 70 to 100 percent per quarter. Of course, because the company is still private, it’s impossible to verify these figures. Analysts in the security market are skeptical about the figures Kagan quotes, but they agree the company has made some good progress this year.

Fortinet marketing executives are quick to point out that the company has taken an approach to the security appliance market that's different from NetScreen's. Kagan insists that Fortinet offers more application-aware features. He says the company offers a broad product line including VPN functionality, content filtering, antivirus protection, intrusion detection firewalling, and, soon, anti-spam functionality. The company has also recently consummated a partnership with Secure Socket Layer VPN startup Neoteris Inc. (see SSL Players Get Feature-Happy ).

“We are addressing a different problem than NetScreen,” says Kagan. “They do more network-level security, and we have gone up the protocol stack.”

Analysts covering the market say they don’t see such a stark distinction between the two companies' approaches.

“I don’t see Fortinet as an application-level security appliance,” says Ogren. “They sit at the perimeter, like NetScreen. I can’t comment on products they haven’t released yet, but it makes sense for them to move in the application direction.”

A new wave of email viruses and worms have highlighted the need for more application-layer security, according to Yankee Group's Ogren (see Security God in the Making?). He agrees that adding anti-spam capability would push Fortinet in this direction.

The company plans to expand its international sales channel and continue to expand the marketing and sales organization. The company has 180 employees, nearly double what it had in May 2002 when it shipped its first product.

— Marguerite Reardon, Senior Editor, Light Reading

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