Zscaler, a provider of cloud security services to small businesses, corporates and service providers, has raised a hefty $38 million round led by an unnamed investor, with participation from Lightspeed Venture Partners.
This is the first outside investment ever taken by Zscaler, which was founded in 2007, and had in the past been funded internally. The company is currently cash-flow positive, but it’s getting the new injection of funds from Lightspeed to scale up its business: the investment, Zscaler says, will be used for product development — particularly in the area of mobility — and to expand Zscaler’s sales and marketing efforts.
Like Qualys (which in June filed for a $100 million IPO), Symplified (which took a $20m round in January), CloudPassage ($14m in April) and Bit9 ($34.5m in July), Zscaler is tackling the growing area of cloud-based security services for businesses.
That market is being fuelled by the three main trends: a greater emphasis on infrastructure-free, lower-cost cloud-based IT services; a growth in mobile devices and the use of social networks, with both often outside the control of corporate IT; and a growing number of security breaches of corporate networks, which can cost businesses millions to fix.
Zscaler already has a sizeable business: it offers solutions for web security, email security, securing corporate data on mobile devices and data loss prevention, which it offers on a single platform to its clients. It operates the Zscaler ThreatLabZ research labs, which monitor billions of daily web transactions from millions of users worldwide to identify and alert customers of new and emerging threats.
And it has a lot of users: Zscaler says it works with 2,500 clients, currently protecting some 8 million users across 160 countries, with clients including the Lay-z-boy furniture company and the multinational operator Telefonica. A TechCrunch contributor even highlighted it as a disruptive presence in the market for being one of the newer players eating into the marketshare of larger competitors like Cisco and Symantec.
But while Zscaler has played hard-to-get with investors before, it saw in Lightspeed a strategic partner that could help it reach its next stage of growth beyond all of the above.
“To date, we have resisted outside investment despite numerous inquiries from top-tier investors,” said Zscaler CEO Jay Chaudhry in a statement. “Our new strategic partners share our vision and are committed to helping Zscaler build a long-lasting business.”
Ravi Mahtre, managing director at Lightspeed, notes that Zscaler’s unique selling point of a truly infrastructure-free security service is better at catching threats that traditional systems might miss. “Many security vendors are putting appliances in the cloud and calling it cloud security,” he said in a statement. “Zscaler is the only company that has the right architecture to securely enable the mobile, cloud and social media applications that often bypass traditional security altogether.”