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Trump Administration Needs To Set U.S. Cybersecurity Mandates

  |   Allegis News, The Latest

 

 

XCONOMY | By Robert R. Ackerman Jr. | January 4th, 2017

 

Robert R. Ackerman

Cybersecurity is the penultimate existential risk to the United States—economically, militarily, socially, and as we have seen recently, politically. The nature of cyber is asymmetric, and given the size of the U.S. economy, our reliance on intellectual property, and the leadership role the U.S. plays in the Community of Nations, we have a lot more to lose than we have to gain in the digital wars of cyberspace. We are target #1 for all comers.

While political rhetoric has been heating up around cybersecurity, for too long, there has been a lot more talk than concrete and substantive action from a public policy perspective.

The incoming administration needs to envision and enact a concerted initiative to ensure America is “cyber secure.” A well-rounded initiative would integrate:

1) Public policy requiring a flexible framework ensuring corporate responsibility, accountability and liability for their cybersecurity;

2) A national initiative, combining expertise and financial resources, to harden critical infrastructure with national economic and security implications—a national Cyber Works program;

3) Concerted support of cyber education at the high school and higher education levels to ensure a trained pool of talent to support our cybersecurity needs and efforts; and

4) A demonstrated ability to identify and respond to any and all cyber attacks targeting U.S. national interests. In essence, we need to create the cyber equivalent of a “Manhattan Project” to secure our welfare, safety, culture, and values in the uncontrolled and unmanaged domain of cyber space.

The key is that the Trump administration should set these requirements for accountability, and then let industry decide how to satisfy them. Government regulations tend to be broadly applied and inflexible—a problem in cyber, where flexibility is essential and there is no such thing as “one-size-fits-all.” So it’s best to give industry the freedom to figure out how to meet these government mandates.

Robert R. Ackerman, Jr. is the founder and managing director of Allegis Capital, a Palo Alto, CA-based early stage venture capital firm that specializes in cybersecurity.

Article found here: xconomy.com

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Cybersecurity Investors Reset, Look at Changing 2017 Landscape

  |   Allegis News, The Latest

Consolidation of startups is set to repeat as venture firms take on cautious stance

In 2016 venture capitalists invested $1.6 billion in cybersecurity startups, as of mid-December, according to the most recent data available from Dow Jones VentureSource. That falls well short of the $3.4 billion take for all of 2015.
That deal-making highlighted investors’ “wait and see” approach as concerns grew about the lofty valuations companies drew in 2014 and early 2015. Cybersecurity enjoyed a boom following a series of high-profile breaches, with enterprises beefing up spending on security products as legacy security providers struggled to provide innovative services.
Publicly traded security companies had a shake-up of their own. One of the leaders, Symantec Corp., acquired Blue Coat Systems in a $4.65 million deal. Intel Corp. sold the majority stake in its security business to private-equity firm TPG.
“In 2016, you had the attempted rise of the establishment to reassert itself,” said Kleiner Perkins General Partner Ted Schlein. “You saw the old guys trying to be relevant.”
Additionally customers faced a dizzying number of startups releasing cybersecurity products. Don Dixon, a managing partner at Trident Capital, said chief security officers he speaks to want “fewer throats to choke” instead of spreading their expenses around a multitude of vendors.
“They would like to see products more integrated rather than spend a lot on systems integration,” Mr. Dixon said.
Several venture capitalists said the consolidation the industry saw in 2016 will continue into 2017, in part because of a higher number of potential acquirers.
Mature IT companies like Oracle Corp. have been active in cybersecurity for some time, but now financial acquirers like Vista Equity increasingly are raising their profile as buyers, according to Mr. Dixon. Moreover, he said industrial companies like General Electric Co. and Emerson Electric Co. are increasingly investing in “Internet of Things” software, and they could potentially become active in acquiring security startups.
Bob Ackerman, managing partner at Allegis Capital, said venture firms have grown more cautious as they learn that not all the capital has been smartly deployed.

“This stuff is really hard, and unless you know the difference, it’s easy to invest in things that are not well-differentiated,” Mr. Ackerman said.

How the industry’s later-stage companies perform in the public markets could also affect private fundraising. This year saw a dearth of cybersecurity IPOs, and investors are closely watching the likes of Okta, ForeScout and Carbon Black, all of whom have signaled they are considering public offerings in 2017.

Also looming large is how the Trump administration, as well as unforeseeable world events, may affect security trends. Venture investors said the president-elect’s muscular talk on security could translate into a boon for the industry.

“I think that you’re going to see an increase in government security spending,” said Enrique Salem, a managing director at Bain Capital Ventures. “It’s hard to imagine any way you wouldn’t, given the amount of attention it’s getting.”

But there’s a question as to how easily startups could take advantage of such government spending. Startups often have struggled to bring on federal agencies as customers because the lengthy process puts a strain on small sales teams. The Obama administration used programs such as the Pentagon’s DIUx initiative to help bridge the divide. It is unclear how the new administration will treat that issue.

Apart from federal spending on cybersecurity, investors say there are many new security concerns that startups are uniquely poised to take on. Several say they are closely watching platforms addressing new attack vectors, such as those that might affect the Internet of Things.

Others predict 2017 will be the year that automation makes significant strides in cybersecurity. Investors say they’re looking to make bets on software that could augment the limited number security professionals, who are in high demand and command high salaries.

Mr. Ackerman said that certain companies with very differentiated approaches will succeed in 2017 as cyberthreats grow and enterprises continue to increase spending on products. However he noted that beyond high-end financial service providers, many IT managers want security programs that are more integrated, and some companies may struggle in that new reality.

“It will be a tale of two markets,” he said.

Write to Cat Zakrzewski at cat.zakrzewski@wsj.com

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Industry Needs Common Security Standards to Thwart IoT Attacks

  |   Allegis News, The Latest

 

 

XCONOMY | By Robert R. Ackerman Jr. | December 21, 2016

 

A silver lining has emerged in the wake of the massive and well-publicized denial-of-service attack launched less than two months ago by hackers using millions of IoT devices to cripple the websites of major companies like Amazon, Netflix and Twitter. This ambush has triggered a redoubling of efforts to focus on the need for industry-led cybersecurity standards for IoT devices.

Even some in Washington, such as U.S. Senator Mark Warner, favor an industry-based approach before seeking some sort of government IoT security standards implementation. Security-minded business coalitions are stepping up activity in this area— and the more, the merrier.

After all, it isn’t clear in the United States who is supposed to be protecting the Internet. Most IoT (Internet of Things) devices have been hooked up to the Web in recent years with little concern for security, with weak password protection or none at all. There is no formal watchdog — not the government, nor for that matter, anyone else.

Instead, every organization is responsible for defending its own tiny piece of the Internet landscape. Companies and social media hubs are supposed to invest in protecting their websites and often do, but that doesn’t accomplish much if the connections among them are severed, as was the case in the October attack.

There is no way to know for sure if an industry-based IoT unified security approach will work. But it is certainly worth a shot. We know that the highly fluid nature of cyber threats nearly guarantees that government’s traditional approach to regulation (fixed and inflexible) is almost certainly doomed to failure. I believe that the Trump administration must envision and enact a concerted initiative to insure that America is “cyber secure”—but in a broad sense, leaving the specific details to industry players. Industry participants and their suppliers should assume the actual responsibility for stitching together best practices by which to meet government mandates. Ultimately, they are in the best position to combat evolving threats.

The dearth of effective IoT security is no secret. A survey of 220 information security professionals who attended the Black Hat USA conference this year found that 78 percent are concerned about the weaponizaton of IoT devices for use in distributed denial-of-service attacks. Similarly, a survey by Tripwire, a digital security firm, found that only 30 percent of the organizations polled are prepared for security risks associated with IoT devices.

It makes sense for the business community to take the first swipe at resolving the IoT security issue. Some experts suggest some basic security safeguards that manufacturers should provide, such as a unique user name and password for each IoT device. Even more folks are talking about some sort of up-to-date industry “seal of approval” or comparative ratings system regarding the security readiness of IoT devices. The private sector also would do well to try to tap into the expertise of the U.S. intelligence and defense communities, which are rumored to have developed expertise in IoT security.

Separately, collaboration between industry experts and standards groups is already robust. The National Institute of Standards and Technology has a Communications Technology Laboratory examining security in the context of IoT and 5G networks. Other groups, such as the International Standards Organization, Underwriters Laboratory, ATIS, IEEE and the 3rd Generation Partnership Project are collaboratively working on similar issues.

At the same time, at least two industry groups — the Online Trust Alliance and a separate coalition of security firms, including Symantec and ARM Security Systems — have also stepped up to the plate to improve IoT security. The security firm coalition has developed the Open Trust Protocol to provide secure architecture and code management to protect connected devices. The OTP’s architecture uses technologies deployed in banking and for handling sensitive data on smartphones and tablets. It’s designed to work with security software to protect IoT and mobile devices from malicious attacks.

Meanwhile, the Online Trust Alliance, a non-profit with the mission to enhance online trust, has established the OTA Trust IoT Framework as the first global, multi-stakeholder effort to address IoT risks comprehensively. It includes a baseline of 31 measurable principles that device manufacturers and developers should follow to help maximize the security of devices and data collected for smart homes and wearable technologies.

What these consortiums know all too well is that a specific IoT device may not be the actual target of an attack. That device, however, might be highly attractive as a gateway to the network to which it is connected—the real targets being the valuable enterprise assets on that network.

This problem, I should add, isn’t limited to the enterprise. It can also impact home security.

Consider, for example, a smart home equipped with a garage door opener with the added ability to deactivate the home alarm upon entry. This is good for a homeowner entering his home in a hurry. The catch is that now the entire alarm system could potentially be deactivated when only the garage door opener is compromised.

The broad array of Web-connected home devices — including TVs, home thermostats, door locks and home alarms— creates myriad connection points for hackersto gain entry into IoT residential ecosystems.

While companies and industries unite to correct such shortcomings in the home and in the enterprise, individual corporate CIOs, in particular, must push to address the challenges associated with IoT security.

The most important interim step is for CIOs to create a strong governance framework for IoT devices to meet corporate security standards. Such devices, just like any other touch points, must fit within an organization’s security strategy as a whole to prevent data leakages and other privacy breaches. Proactive planning of network and infrastructure upgrades is essential to enable proactive defense.

Having taken meaningful steps already, hopefully the private sector will work toward a viable, agreed-upon solution to the current IoT security nightmare. I, for one, am confident this will happen, albeit with a time lag. Despite some shortcomings, cybersecurity overall has made substantial progress in recent years. It’s time that IoT joined the club.

Article found here: xconomy.com

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Signifyd and ThreatMetrix® Combine Machine Learning and Digital Identities to Eliminate Online Payment Fraud

  |   Portfolio News, The Latest
 
SAN JOSE, Calif.–Leading ecommerce fraud prevention company, Signifyd and ThreatMetrix®, The Digital Identity Company® announced today they will combine efforts to eliminate online fraud for their customers. The partnership enables ecommerce merchants to remove the liability for fraud by leveraging the power of the ThreatMetrix Digital Identity Network® through Signifyd’s Guaranteed Payments solution.

“As online fraud evolves at an ever-increasing pace, merchants need new ways to mitigate risk. Signifyd’s use of the ThreatMetrix Digital Identity Network in its Guaranteed Payments solution allows merchants to aggressively grow their business and accept more legitimate customers without risk”

Signifyd’s VP of Partnerships, Skye Spear, summarizes what the partnership means for ecommerce merchants, “ThreatMetrix provides global shared intelligence on more than a billion digital identities. The ThreatMetrix Digital Identity Network provides additional insights for Signifyd’s machine learning capabilities enabling us to authenticate orders from customers who may have previously been denied. We’re able to incorporate additional data in real-time to identify and mitigate sophisticated fraud scenarios across one or more of our customers emulating multiple buying identities. Our goal is to increase decision confidence for online merchants through a managed service that’s backed by a financial guarantee.”

Through the partnership, Signifyd will leverage the ThreatMetrix Digital Identity Network to further enhance Signifyd’s Guaranteed Payments, which provide a 100% financial guarantee against fraud on every approved order. This new intelligence and subsequent guarantee allows merchants to accept more orders without the risk of chargebacks as the liability of fraud losses are shifted to Signifyd. Guaranteed Payments are ideal for fast-growing businesses, merchants in fraud-prone industries and those looking to expand overseas or in new markets and segments previously considered too risky.

“As online fraud evolves at an ever-increasing pace, merchants need new ways to mitigate risk. Signifyd’s use of the ThreatMetrix Digital Identity Network in its Guaranteed Payments solution allows merchants to aggressively grow their business and accept more legitimate customers without risk,” commented Leah Evanski, ThreatMetrix VP Strategic Alliances.

Signifyd and ThreatMetrix together provide a winning alternative to merchants using restrictive platforms that decline legitimate orders, delay shipments and are unable to eliminate chargebacks. Even other fraud prevention platforms with machine learning lack the closed loop for data feedback that Signifyd and ThreatMetrix provide with Guaranteed Payments and the Digital Identity Network. This partnership allows Signifyd and ThreatMetrix to leverage extensive fraud data and expertise to stop subsequent attempts at fraud, regardless of merchant size, industry or value of transaction. With more data and complete transparency, Signifyd and ThreatMetrix can significantly reduce financial losses from fraud for merchants.

About Signifyd

Signifyd was founded on the belief that e-commerce businesses should be able to grow without fear of fraud. Signifyd solves the challenges that growing e-commerce businesses persistently face: billions of dollars lost in chargebacks, customer dissatisfaction from mistaken declines, and operational costs due to tedious, manual transaction investigation. Signifyd Guaranteed Payments protect online retailers against fraud and chargebacks with a 100% financial guarantee against fraud for every approved order. Signifyd’s full-service machine-learning engine automates fraud prevention allowing businesses to increase sales and open new markets while reducing risk. Signifyd is in use by multiple companies on the Fortune 1000 and Internet Retailer Top 500 list. Signifyd was recognized as one of the 50 most innovative Fintech companies of 2016 by Forbes and is headquartered in San Jose, CA. For more information, please visit www.signifyd.com.

About ThreatMetrix

ThreatMetrix®, The Digital Identity Company®, is the market-leading cloud solution for authenticating digital personas and transactions on the Internet. Verifying more than 20 billion annual transactions supporting 30,000 websites and 4,000 customers globally through the ThreatMetrix Digital Identity Network®, ThreatMetrix secures businesses and end users against account takeover, payment fraud and fraudulent account registrations resulting from malware and data breaches. Key benefits include an improved customer experience, reduced friction, revenue gain and lower fraud and operational costs. The ThreatMetrix solution is deployed across a variety of industries, including financial services, ecommerce, payments and lending, media, government and insurance. ThreatMetrix is headquartered in San Jose, CA. For more information, please visit www.threatmetrix.com.

Contacts

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Kayla Abbassi, 562-412-2038
kayla@vscpr.com
or
ThreatMetrix
Upright Position Communications
Paul Wilke, 415-881-7995
paul@uprightcomms.com

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Building a New Cybersecurity Startup Platform: DataTribe

  |   Allegis News, Portfolio News, The Latest

 

 

National Venture Capital Association | By Robert R. Ackerman Jr.

 

If you want to get a sense of the size and significance of the U.S. cybersecurity ecosystem in one location, a must-visit is the National Business Park at Fort Meade in Maryland. It is highly impressive and may someday serve as a stellar example of an effective new way to participate in the startup ecosystem and its venture capital brethren.

Fort Meade has been transformed from an Army base into a sprawling cyber city. Thirteen years ago, the young park had 10 buildings. Today, the square footage of the 28-building complex is roughly half the size of the Pentagon, and it is completely full. Tenants include the National Security Agency, the U.S. Cyber Command, the Defense Information Systems Agency and the cybersecurity businesses of Boeing and General Dynamics, among others.

This represents a snapshot of the breadth of the U.S. cybersecurity industry today, albeit only one relatively small piece because the private sector has come to dwarf the size of the government sector. In 2004, the global cybersecurity market was $3.5 billion. This year, it’s expected to exceed $122 billion, according to Research and Markets, which also projects that it will exceed $202 billion by 2021. Cybersecurity has become by far the fastest-growing sector of information technology. The growth of the sector is also apparent from the recent increase in cybersecurity acquisitions.

The venture capital ecosystem has responded accordingly and, along the way, has had to develop its own cyber experts internally to separate the wheat from the chaff among cybersecurity startups – a world immersed in the domain of deep science and advanced engineering and one in which expertise is essential. VCs also have to approach potential cybersecurity startup investments gingerly because too many “me-too” companies are being funded by a venture community eager to participate in one of the hottest sectors of IT innovation.

Nonetheless, the cybersecurity investment picture remains very bright. Last year, VCs invested $3.2 billion in 219 cyber startups, more than double the total funding in 2012, according to CB Insights. Last year, five of the seven (seven confirmed, nine rumored) private cybersecurity unicorns reached their required $1 billion valuations. This year, while cooling a bit, cybersecurity VC funding remains vibrant.  As the founder of Allegis Capital, a Silicon Valley early-stage cybersecurity venture firm, it’s no surprise that I enjoy the proliferation of cyber startups in the Valley. At the same time, the cyber expertise around Fort Meade has always been impressive and so I’ve invested in Maryland-based cyber startups over the years. To put things in context, Maryland has more than three times as many cyber engineers as the rest of the country combined, and many work at the cutting edge, out of the necessity that comes with national defense imperatives.

Despite this wealth of engineering and technical expertise, start-up success in the Washington D.C. Beltway has faced a series of obstacles. No startup succeeds solely on the strength of its technological prowess. Also essential to success is entrepreneurial experience, startup “know how” and a broad cross section of commercial skills, contacts and customer and partner relationships. In other words, the cyber community around the Washington Beltway has needed a mini Silicon Valley ecosystem and the Silicon Valley “playbook”.

That’s why DataTribe was created—to merge the cyber security innovation of Maryland with the startup building expertise and resources of Silicon Valley. DataTribe is a cybersecurity startup platform – a crucible in which to forge start-ups – co-based in Fulton, Md., and Silicon Valley – and one dedicated to leveraging the expertise created from working with the most advanced information technologies forged by the NSA and related institutions, as well as national laboratories.

DataTribe focuses on those areas of innovation in which government labs, out of necessity, have been innovating in cybersecurity, data and analytics well in advance of the commercial market. DataTribe’s business model is unique, partly because it is an operating company, not a venture firm, although it can provide startups with up to $1.5 million in seed capital (with follow-on participation in subsequent rounds).  It’s also unique in that DataTribe itself creates the concept for each startup and co-founds each company with a team of technologists with deep, relevant technical expertise and experience. These are teams that have “been there and done that” in production environments.  Supporting these efforts on a daily basis is an operating team of highly experienced, dedicated executives with decades of successful start-up experience in Silicon Valley and Boston.

DataTribe will co-found and launch three start-ups a year. The first three startups came on board in this inaugural year and are already gaining market traction…

Dragos — recently named one of Cybersecurity Ventures “Cybersecurity 500” top companies  — was the first of the startups. It specializes in network mapping, detection and remediation of cybersecurity problems in industrial control systems. The second, Enveil, is developing the first commercial solution for end-to-end lifecycle encryption; including data-in-use (homomorphic encryption based Cloud Security). The third company, Kesala, is developing lightweight solutions for low cost and ad-hoc, secure virtual private networks as well as cloud-based security monitoring of large-scale traffic.

The cybersecurity market is large, rapidly growing and driven by non-stop innovation. It is enormously complex at every level – within its individual components, in its connection to complex networks and in its relationship to data in all its forms and flows. You simply can’t learn fast enough from a standing start.

DataTribe is bringing the Silicon Valley playbook to the nation’s center of innovation excellence in cyber-related domains to forge a new generation of cyber security startups.  In time and with success, we expect to see the emergence of a self-sustaining cybersecurity startup ecosystem, fueled by an unusually deep reservoir of relevant U.S. technical talent. In a broader sense, this is how Silicon Valley started, and there is no reason why a smaller, more concentrated version can’t take root on the other side of the country.

Robert R. Ackerman Jr. is founder and managing director of Allegis Capital, a Palo Alto, Calif.-based early stage venture capital firm specializing in cybersecurity.  Ackerman is a co-founder of DataTribe and Allegis Capital is a strategic partner.

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Article found here: nvcaconnection

 

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The CyberWire Special Edition: Venture Capital

  |   Allegis News, The Latest

In this CyberWire Podcast Special Edition, we examine the current state of investment in cyber security, speak to experts in the field, and learn from top cyber security-focused venture capitalists what they expect before they invest.

The CyberWire | November 29, 2016

There’s no question that cyber security remains a hot industry, and that attracts investment. What are venture capitalists looking for, and how do they decide which deals to make? How did we get here, and what’s the outlook for the future?

We round up some experts, as well as some of the top cyber security venture capitalists in the industry to find out how they choose, and what they expect once the deal’s been made.

  • Robert R. Ackerman, Jr. is founder and managing partner at Allegis Capital. They describe themselves as, “a leading seed and early stage venture capital investor in companies building disruptive and innovative cybersecurity solutions for the global digital economy.” allegiscap.com
  • Alberto Yepez is co-founder and managing director at Trident Capital Cybersecurity. In their own words, “We know cybersecurity. It’s all we invest in. And we care about making the world a more secure place to live.” tridentcybersecurity.com
  • Tom Kellermann is CEO of Strategic Cyber Ventures. They say they are, “the industry’s first investment vehicle for synergistic cybersecurity technologies focused on disrupting the adversary.” scvgroup.net
  • Tami Howie is executive director of the Chesapeake Regional Tech Council. Prior to that, as a lawyer, she has been involved with the successful exits of over 150 companies and has represented technology companies, investors, SBICs and underwriters such as JP Morgan, Goldman Sachs and Morgan Stanley. chesapeaketech.org
  • Dr. Christopher Pierson is general counsel and chief security officer at Viewpost, an electronic payments and invoicing company. Prior to joining Viewpost, Chris was the Senior Vice President, Chief Privacy Officer for the Royal Bank of Scotland’s U.S. banking operations. viewpost.com
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Cylance is revolutionizing cybersecurity with products and services that proactively prevent, rather than reactively detect the execution of advanced persistent threats and malware. Learn more at cylance.com.

Article found here https://thecyberwire.com

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Inphi Corp. (IPHI) to Acquire ClariPhy Communications in $275M Deal

  |   Portfolio News, The Latest

 

November 1, 2016 | Streetinsider | Inphi Corporation (NYSE: IPHI) announced that it has signed a definitive agreement to acquire ClariPhy Communications Inc., a leading provider of ultra-high-speed systems-on-chip (SoCs) for multi-terabit data, long haul and metro networking markets for $275 million in cash as well as the assumption of certain liabilities at the close. The acquisition is expected to close in December of 2016, at which time ClariPhy’s employees are expected to join Inphi.

“With the acquisition of ClariPhy, we are completing our product portfolio as the leading component and platform supplier for optical networking customers,” said Ford Tamer, president and CEO of Inphi. “The ClariPhy coherent DSP complements Inphi TiA, driver, optical PHY and silicon photonics components to provide system OEM and module customers high-performance and low power platform solutions. Following closing, we expect to have platform offerings for long haul, metro, DCI edge, and intra-data center applications. We believe this will provide customers with faster time-to-market, proven quality, and competitive cost.”

As the world turns toward optical networking, the ability to communicate in “coherent” DWDM technology over both long and short distances is becoming increasingly important. ClariPhy is one of only three merchant suppliers with this coherent DSP technology in the world today. On the product front, following closing, Inphi expects to be able to offer customers (1) coherent DSP, TiA, drivers for long haul, and metro, (2) direct detect PAM DSP-based solutions for DCI edge between data centers, and (3) NRZ and PAM short reach solutions for inside data centers. On the component front, following closing, Inphi expects to be able to offer TiA, driver, silicon photonics, coherent DSP, PAM and NRZ physical layer devices.

IHS estimates the total available market for 100G & 200G coherent optical network hardware will grow at 18% CAGR, from $3.2 billion to $7.4 billion, between 2015 and 2020. This growth will be driven by several concurrent, powerful tailwinds: the optical super cycle, a growing and expanding SAM (serviceable available market), opportunities in regions such as China and with new markets such as Cloud. Inphi believes that this acquisition will position the company to be one of the most comprehensive component and platform suppliers across all three optical market segments inside/outside data centers, metro and long haul.

Strong Additions to the Inphi Team Inphi enthusiastically welcomes the addition of the ClariPhy employees who are expected to join our team as a part of this acquisition. Nariman Yousefi, ClariPhy’s current CEO is expected to join Inphi to run the Coherent DSP business unit. Additionally, the company’s already strong design team is expected to be augmented by ClariPhy’s well-known VP of Engineering and DSP architect, Oscar Agazzi.

Further details of the transaction and arrangements are set out in Inphi’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2016.

Article found here: streetinsider.com

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Why tech M&A fails so often: The three most common mistakes

  |   Allegis News, The Latest

 

 

 

By Bob Ackerman | November 1, 2016 | PE Hub

 

It was a failure. That’s what we learned in September about semiconductor giant Intel’s acquisition of antivirus software maker McAfee five years ago. Intel agreed to sell a majority stake in its $7.7 billion acquisition to a private equity firm at a price that showed that McAfee’s assets had increased only marginally, if at all.

There is an important message here.

Far too many technology companies are doing a poor job pursuing acquisitions. Strategic planning is insufficient and integration is largely bungled, and companies usually value acquisitions based on project potential and end up overpaying when that “potential” fails to materialize.

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Robert R. Ackerman Jr., founder and managing director, Allegis Capital. Photo courtesy of the firm

A technology company should acquire another only if the acquisition is highly likely to enable or enhance growth prospects indefinitely. Acquirers sometimes say this will be accomplished, but it usually turns out to be a pipe dream.

Most experts say the failure rate of acquisitions is at least 50 percent. Harvard Business Review has estimated it to be 70 percent to 90 percent.

It’s not as though companies decide to pursue an acquisition out of thin air. Their motivation is usually reasonable.

Companies may turn to M&A to embrace a new or emerging market opportunity or, concerned about their deteriorating competitive position, as a means to reinvigorate themselves. In other cases, a company may decide that it is better to buy new technology than to make it, or that it needs an outside company under its wings to enhance its domain expertise. Some acquisitions are sparked by several of these factors.

Too often, however, the strategy is flawed and key tactical steps miss the mark. Companies put on blinders and conclude that their particular deal will somehow buck the negative historical trend.

More often, the result is that the wrong companies are purchased for ultimately an unrealistic reason, and deals are improperly priced. If the marriage doesn’t fail outright, the financial performance of the acquirer declines.

Why deals fail

Even if the right acquisition is made, lots of things tend to go wrong. Corporate cultures clash. Or too much attention is focused on tactics and too little on strategy. Or, in the case of startups, new employees who are unwilling to swap the dream of being a key player in the growth of a successful startup to merely become a cog in a corporate wheel don’t buy into the deal and depart.

Consider another, recent technology acquisition that has looked shaky from the get-go. Microsoft’s purchase in the summer of LinkedIn for more than $26 billion, almost 50 percent more than the value of LinkedIn’s stock. Synergy is lacking. Small wonder given that Microsoft’s M&A track record is weak. It has written down multibillion-dollar purchases of the Nokia handset business and the aQuantive advertising business. And its $8.5 billion purchase of Skype is widely viewed as disappointing.

In many cases, mergers and acquisitions don’t flat out fail. They just underperform. According to an analysis last month of acquisitions by the S&P Global Market Intelligence team, post-deal returns among Russell 3000 companies making significant acquisitions generally did worse than their peers. Profit margins, earnings growth and return on capital all declined, relatively speaking, while interest expense rose as debt soared.

The three most common M&A mistakes

So what happens most often to undermine M&A deals?

  1. Integration is weak. The strategic partnering and business development executives who find companies and negotiate the deals are notthe executives who actually manage the acquisition or integrate the target company. Most of the time, it is the acquirer’s chief technology officer or the operating executive who wanted the acquisition who determine the fate of the startup. The success of an acquisition often depends on whether the acquiring company wants to keep the new company as a standalone division or integrate it into the corporation. Standalone divisions tend to have a better shot at success. The reality, however, is that if a company is being acquired for its intellectual property, typically the case, the usual strategy is to integrate the company and quickly assimilate it.
  2. Executives fail to distinguish between deals that might improve current operations from those that could dramatically improve the company’s growth prospects. Companies then pay the wrong price and integrate the acquisition poorly. A deal designed to boost a company’s performance is generally insufficient to significantly change a company’s growth trajectory. It usually requires something seldom done, working to successfully integrate the acquisition in terms of its business model.

Business models are multifaceted, but their most important component is the resources, such as employees, customers and products, used to deliver customer value. In an ideal case, these resources can be extracted from an acquired company and plugged into the parent’s business model. The problem is that additional business model components, such as the profit formula and business processes such as manufacturing, R&D and sales, are imbedded and generally not transferrable.

  1. Acquisitions don’t have a specific mission and targeted goals. Much more typical is the Microsoft-LinkedIn acquisition, in which the corporate combination simply hopes to improve corporate prospects by scooping up a new business.

M&As that have worked

It’s not impossible for corporate combinations to work. Some have.

One example is Apple’s purchase of chip designer P.A. Semi in 2008. Before then, Apple procured its microprocessors from independent suppliers. But as competition with other smartphone companies increased the importance of battery life, it became imperative for Apple to optimize power consumption by designing processors specifically for its products. Apple had to purchase the technology and talent to develop an in-house chip design capability. Predictably, the combination fared well.

Another successful example was EMC’s acquisition of VMware in 2003. EMC is a manufacturer of hardware storage. Its marriage with VMware substantially strengthened the company’s reach into its customers’ data centers. This merger turned out to be a stunning success.

The bottom line is that executives need to become far more discerning in eyeing potential acquisitions. This is precisely why Salesforce.com, Walt Disney Co and Google parent Alphabet Inc recently took a hard look at acquiring Twitter and, in each case, walked away.

Robert R. Ackerman Jr. is founder and managing director of Allegis Capital, a Palo Alto, California-based early-stage venture capital firm specializing in cybersecurity.

 

Article found here: Pehub.com

 

Photo of logos taken in June 2016 when Microsoft announced its $26.2 billion purchase of LinkedIn. Reuters/Dado Ruvic

 

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vArmour Continues to Drive Data Center and Multi-Cloud Security Innovation through Tripling its Product Patent Portfolio

  |   Portfolio News, The Latest

vArmour

 

 

 

 

 

 

 

Recently awarded patents will serve the growing security needs of the modern data center environment

 

Marketwired | Oct 26, 2016 | 9:00 ET

 

MOUNTAIN VIEW, CA – vArmour, the leading data center and cloud security company, today announced innovative additions to its patent portfolio issued by the U.S. Patent and Trademark Office. Newly awarded patents focus on segmentation and service chaining in the modern data center.

In its quest to expand data center security for the multi-cloud world, vArmour has aggressively tripled its patent portfolio over the course of the year, from 4 issued and 11 pending in 2015 to 13 issued and 24 pending U.S. patents. The recently awarded and pending patents put further emphasis on service chaining, context aware micro-segmentation and enforcement inside multi-clouds. These innovations help organizations benefit from segmentation and micro-segmentation by reducing attack surfaces, improving compliance, and increasing infrastructure utilization. vArmour’s all-software, subscription model allows customers to integrate new, patented capabilities as soon as they become available, unlike hardware-centric security scenarios where new capabilities can only be realized by buying or refreshing expensive hardware.

“Having spent a career understanding the challenges of securing mission critical data center environments, it has been incredibly exciting to be part of a world class team solving the hard problems in new and completely innovative ways,” said Marc Woolward, CTO at vArmour and a former CTO of Goldman Sachs. From simplifying and scaling security within the cloud to developing cutting-edge ways of service processing on network gateways, our patent work reflects the ingenuity within our team and our determination to protect our intellectual property on behalf of our customers.”

vArmour’s mission is to ensure that data center cloud security is simple, scalable and cost-effective. The awarded patents will serve as strategic components in addressing this mission. As a result, the expanded portfolio will cover:

  • Service chaining – distributed service processing of network gateways using virtual machines
  • Dynamic security insertions into virtualized networks (application of security to network virtualization)
  • Context aware micro-segmentation

“vArmour is an industry-leading innovator with a proven track record in developing flexible, software-driven solutions to meet the needs of today’s enterprise organization,” said John Ferrell, Attorney at Carr & Ferrell, LLP. “With these newly issued patents, vArmour is equipped with the ability to drastically impact the security marketplace and drive strategic change in data center and cloud environments.”

“vArmour operates in a market space undergoing disruptive change in multiple dimensions,” said Peter Christy, Research Director with 451 Research. “First, data center security is replacing the traditional perimeter model to include much needed internal security; second, software-defined overlay networking is being adapted to provide fine-grained micro-segmentation of the data center network, to provide a platform for internal security; and finally, the scale and complexity of modern data centers is dictating that this be architected and implemented as cloud-native technology rather than adapting and reimplementing old software and system architectures. Thus it is likely that innovation and intellectual property will play a key role in this important emerging market.”

About vArmour
vArmour, the data center and cloud security company, delivers software-based segmentation and micro-segmentation to protect critical applications and workloads with the industry’s first distributed security system. Based in Mountain View, CA, the company was founded in 2011 and is backed by top investors including Highland Capital Partners, Menlo Ventures, Columbus Nova Technology Partners, Work-Bench Ventures, Allegis Capital, Redline Capital, and Telstra. The vArmour DSS Distributed Security System is deployed across the world’s largest banks, telecom service providers, government agencies, healthcare providers, and retailers. Partnering with companies including AWS, Cisco, HPE and VMware, vArmour builds security into modern infrastructures with a simple and scalable approach that drives unparalleled agility and operational efficiency. Learn more at www.varmour.com

Article found here: marketwired.com | October 26, 2016

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How to Get a ‘Yes’ From a Venture Capitalist

  |   Entrepreneur Resources, The Latest

 

 

 

 

Fortune | By Robert R. Ackerman, Jr. | October 26, 2016 | 5:00pm P.T.

 

 

Nine tips for improving your odds.

 

This article is part of Tools of the Trade, a weekly series in which a variety of experts share actionable tips for achieving fast and effective results on everything from productivity to fundraising.

This week, Bob Ackerman explains how entrepreneurs can impress venture capitalists. Ackerman is the founder and managing director of Allegis, an early-stage venture firm that focuses on cybertechnology companies.

Pulling off a successful pitch and actually getting an investment from a venture capital firm is a huge feat. While the pace of venture capital investing remains strong — the second quarter of 2016 marked the 10th consecutive quarter in which VCs invested more than $10 billion — as an entrepreneur, the odds are stacked against you. VCs typically finance only one or two percent of the business plans they see.

Before you begin perfecting your pitch and approaching VC firms, take a moment to determine whether venture capital is the right funding option. VCs typically deploy millions of dollars in a startup and are looking to make several times their investment: 6X to 10X is a good rule of thumb. If your startup doesn’t truly target a huge market with a strong and credible management team, you should consider other sources of funding.

With that in mind, here are nine steps to get you started and improve your odds for getting a VC to bite.

1. Ask yourself the serious questions. Does the market you’re addressing really warrant attention from a VC? Startups always face lots of barriers to entry; is your product or service differentiated enough to overcome these obstacles? If you do raise venture funds, you will likely have to surrender control of your company to your new boss – i.e., your Board, which will now include VCs. Are you comfortable with that? If not, venture capital funding may not be the best route.

2. Make the intangible, tangible. Do as much as you can before showing up to a pitch: incorporate your company, set up your website and domain name, create business cards and, if possible, create a product prototype. This puts you in a better position to raise capital at a higher valuation, particularly if you have a prototype, than if you simply come with an idea.

3. Read their minds. There are certain pieces of information VCs will always want to know. Be ready to address the three types of risk all startups face: market, product and execution. They’ll also want to see customer references.Finally, make sure you can address the technical credibility of your product or service.

4. Research which venture firms you should approach. Most have certain types of companies they like to invest in; make sure your company fits within those parameters. After that, research each firm’s reputation among entrepreneurs. If you can, contact entrepreneurs the VCs have previously funded, and ask if they’d work with the firm again. If not, find out why not (a sour ending to a relationship can say a lot). Also ask how the firm responded when things got tough. All of this will help you determine whether the VC firm can truly “add value,” as well as inject money.

Once you’ve answered all these questions, refine your target list to the best “potential fits”. Broadcasting your plans to venture firms who are not a fit is waste or your time and theirs.

5. Know what makes you unique. It’s important that you present yourself as the expert in the room. Make sure your brief “elevator pitch” is top-notch. Time your presentation:30 minutes for the presentation itself, 10 minutes for a demonstration of your product or service, and 20 minutes to accommodate questions and feedback. Anticipate tough questions. Why does your business need to exist? Why you? Why now? What makes you unique?

6. Get a “warm’ introduction. VCs expect founders to use their social networks to get an introduction at the firm. It demonstrates you know how venture capital works and that you know how to hustle. It also shows us someone we know is willing to go to bat for you. Cold calls go to the bottom of the pile and are never really evaluated.

7. Meet with as many suitable VC firms as possible and target the right partner. Successful fundraising is largely about persistence. In fact, it’s a lot like dating in quest of a soul mate. Don’t just target a firm, target the “right” partner within the firm that will most likely respond to your pitch. Every partner has different investment interests (which you can usually find in their online bios). Target the one most likely to be interested in your company.

8. Be yourself in the meeting. Resist the urge to don a mask of no-nonsense professionalism. Instead, act natural and be yourself. VCs invest not only in ideas, but in people, too.Investors are adept at spotting superficiality. It’s important to be yourself.

9. Remember the dos and don’ts. Do demonstrate how you can counter the competition. Do know your numbers cold.Do overflow with passion and conviction. Do balance boldness with believability. Do listen and engage. Do be honest about your competition and likely challenges (and know how you will overcome both). Don’t be vague. Don’t exaggerate. Don’t name-drop. Don’t talk too much.

In the end, your goal is simple: Land a second meeting. Good luck.

Find this article here: Fortune.com

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