Despite recent controversy, Tanium announces a $100 million secondary sale

Tanium hasn’t had the best year, but a new stock sale is telegraphing that while the company may be down, it’s far from out. This morning, the 10-year-old, Emeryville, Calif.-based company, whose technology enables organizations to continuously scan all endpoints in a network to detect vulnerabilities and unmanaged devices, is announcing it has raised $100 million led by the private equity firm TPG.

The deal assigns the company a post-money valuation of  $3.75 billion, meaning Tanium is essentially priced the same as when it last raised roughly $150 million from investors in 2015 at a post-money valuation of $3.65 billion.

Tanium’s CEO, Orion Hindawi, says the company has $300 million in cash and investor capital in the bank and that it didn’t need to raise money.

The company nevertheless “realized there was an opportunity to do a secondary [sale]” that could provide early employees and shareholders with some liquidity, while also getting heavy-hitting TPG involved in its future success, he says. “I want institutional investors on our cap table who can help [do an eventual public offering] right,” Hindawi explains.

Hindawi says that none of the outfit’s previous institutional investors — including its biggest outside shareholder, Andreessen Horowitz — are selling any of their shares and that the secondary sale instead involves “friends and family” shareholders.

He also claims that Tanium has already conducted secondary sales “multiple times” in the past to “lessen the pressure” on both employees as well as Tanium, which aims to go public on its own timeline.

Certainly, Tanium isn’t the first Silicon Valley outfit to allow early investors and employees to wring real money out of their paper holdings while making its way toward an initial public offering. Facebook, Twitter, Groupon, Pinterest, Zynga and Automattic are among many companies that have enabled employees and early investors to cash out of some of their privately held shares.

Companies typically negotiate secondaries from a position of strength, because their shares are desirable to outside investors. Indeed, Hindawi claims that Tanium’s revenue has been growing 100 percent year over year, and that it’s seeing 150 percent “net renewals. When [customers] pay us $1 one year, they pay us $1.50 the next, not because we charge more for the same thing, but because we keep adding value” by introducing new features on a monthly basis.

Still, with Tanium’s previous secondary sales conducted so quietly, it’s easy to wonder why the company is today choosing to broadcast its newest stock sale.

The answer seemingly traces in part to a string of high-profile departures at the company, some of them highlighted last month in a stinging article in Bloomberg that characterized Hindawi as egotistical, abusive to employees and a cheat who, according to Bloomberg’s sources, has “fired workers before they could cash in their stock options—a practice that had the effect of fortifying his control over the company.”

It wasn’t a good look for Hindawi, who quickly responded with an “open letter” in his own defense, and who today calls Bloomberg’s allegations “repulsive.”

Of accusations that he unfairly terminated employees, he says there is “no correlation between [employees’] vesting dates and when we separated,” and calls Bloomberg’s report “provably untrue.”

Specifically, he says, even before Bloomberg published its story, Tanium’s board “ran an investigation [with the help of a third party] because we take this stuff very seriously . . . They didn’t find a whiff [of malfeasance] but rather former employees who’d left because they weren’t a fit, because of an ethics issue, or for cause.”

Asked about nine senior executives who’ve left the company in the last nine months — including Tanium’s president, its former CMO and its former chief of operations and finance — Hindawi acknowledges that the culture can be hard-nosed, but dismisses the departures as growing pains.

“Tanium isn’t a cuddly environment. We’re not a cuddly product. We’re at war with a cyber environment that’s really unfriendly to our customers; they’re asking for a solution that protects them against that existential threat. I don’t apologize for bringing in the best people to do that.”

Hindawi somewhat famously started Tanium with his father, David Hindawi, who is the company’s executive chairman. The two had previously co-founded an earlier company, BigFix, which they sold to IBM in 2010.

Last month, shortly before Bloomberg published its story, Tanium — which now employs 550 people — hired Fazal Merchant from DreamWorks Animation to be its new operations and finance chief. Hindawi says an “incredible pipeline of people” continue to gravitate to the company.

“People assume there’s something behind” transition at the company, but “companies change as they experience hyper growth and their needs change,” says Hindawi. “It doesn’t mean that [employees who’ve left] aren’t great people. In many cases, I’ve [served as a reference for] them. But our goal isn’t to keep people; it’s to serve our customers. We owe it to the 550 families that depend on us to do a great job and build the best company we can.”

Institutional Venture Partners joined TPG in Tanium’s newest round of funding. IVP is among the company’s earlier backers, which, in addition to Andreessen Horowitz, also includes T. Rowe Price, Franklin Templeton Investments, Geodesic Capital and Citi Ventures. The company has now raised $407 million altogether.

In addition to Bloomberg’s story, Tanium was called out last month by The Wall Street Journal for not seeking the approval of one of its clients, El Camino Hospital in Santa Clara, Calif., whose internal network Tanium showed externally for several years to prospective new clients as a way of demonstrating the efficacy of its own software.

Perhaps unsurprisingly, Tanium publicly disputed the Journal’s characterization of how it presents information to clients during its sales pitches. It also acknowledge that it “should have done better, anonymizing that customer’s data.”

Photo of Orion Hindawi courtesy of Tanium.