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

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

ExtraHop uses machine learning to help companies prevent, detect, and eliminate threats on their networks, operating in a fast-growing sector of cybersecurity called “network detection and response.” It has around 1,000 customers including The Home Depot, Concur, Seattle Children’s, Ulta Beauty, and others. The 14-year-old company — which hinted at an IPO in the past — hit $100 million annual recurring revenue in the first quarter and expects that metric to grow by 40% this year.

Cybersecurity has been in the spotlight over the past year and particularly the last few months with large attacks affecting various entities including the meat industry, tech giants, federal agencies, and a major gas pipeline. The pandemic also provided new hacking opportunities as businesses shifted online and cyber criminals capitalized on the health and economic distractions.

“Organizations today face an array of incredibly sophisticated cyberattacks with diverse motivations that run the gamut from theft of sensitive personal and business data to illicit profit,” CEO Arif Kareem said in a statement. “Attackers have long had the advantage, and we’re on a mission to change that.”

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

Kareem and the company’s co-founders Jesse Rothstein and Raja Mukerji will stay on in their respective leadership roles. ExtraHop employs more than 500 people; they will also stay at the company. ExtraHop will continue operating 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 prior to launching ExtraHop in 2007. The company began as an IT operations analytics provider and later added cybersecurity capabilities for both on-premise and cloud environments. Kareem joined ExtraHop in 2016 after executive stints at Tektronix and Fluke Networks.

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

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

Madrona Managing Director Matt McIlwain said the acquisition was a “strong return” for the Seattle venture capital firm. He first met Mukerji and Rothstein at an event in 2007, and lauded the co-founders for taking a long-term approach to building a business.

“They had a clear vision for enterprise needs around performance and reliability of their mission-critical applications,” said McIlwain, an ExtraHop board member. “Over time, they discovered that their capabilities could also solve enterprise security problems and that has become the core of their business.”

ExtraHop is ranked No. 15 on the GeekWire 200 list of top Pacific Northwest startups. It made an undisclosed number of layoffs in April 2020.

Bain used its $11.8 billion flagship fund to acquire ExtraHop; Crosspoint invested out of its $1.3 billion fund focused on cybersecurity, privacy, and infrastructure software sectors.