Cognitive Security Case Study
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30 January 2013 Vladislav Jež Partner, Credo Ventures Local to Global: Cognitive Security Case Study
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*Cognitive Security Case Study* _How venture capital can help to build the leading IT security company._ On January 30, Credo Ventures announces that Cisco Systems (NASDAQ:CSCO), the global leader in networking solutions for the Internet, intends to acquire Cognitive Security, Prague-based provider of network behavioral analysis software, for an undisclosed amount in cash and retention-based incentives. Credo Ventures has played a central role since it led the investment round in April 2011, joined by other investors including RSJ Private Equity and Evolution Equity.
Transcript of Cognitive Security Case Study
30 January 2013
Vladislav Jež Partner, Credo Ventures
Local to Global:
Cognitive Security Case Study
Esther Dyson Chair
about us
Reshma Sohoni Board Member
advisory board
Stuart Chapman Board Member
€18 million raised from over 30 high-net-worth individuals
sold to CISCO Systems sold to Brand Embassy
3 Partners + 2 Associates
office in Prague
Credo Ventures - Credostage 1 Fund - /2011/
Key Factors For Building a Global Leader
University Spin-offs In CEE, Opportunities And Challenges
Observations and experiments are performed
Research University develops preliminary commercialization strategy
Market assessment
University may pursue patent protection
Patenting
University proactively approaches companies, entrepreneurs, and investors to bring the technology to market
Prospecting Startup is created and compensation to university may involve fixed fees, milestone fees, royalties, equity, and other forms
The deal
Source: OTC (University of Texas at Austin)
5 Steps of Technology Commercialization
Cognitive Security
a provider of Network Behavior Analysis products and services. It uses advanced Artificial Intelligence techniques to complement current firewalls and Intrusion Detection/Prevention security systems and to protect its users against modern sophisticated network attacks.
Quick pitch:
experts in Network Behavior Analysis
Location:
Prague, Czech Republic
Funding:
EUR 1 million (4/2011)
Exit:
sold to Cisco Systems (2/2013)
COSE Timeline
COMPANY
ESTABLISHED
LICENSE
AGREEMENT
COGNITIVEONE
LAUNCHED
SILICON VALLEY
COGNITIVEONE
2.0
DUE DILIGENCE
START
BUSINESS PLAN
DRAFT
TERM SHEET
SIGNED
VC
INVESTMENT
CISCO OEM
DEAL
VP SALES
HIRED
BULL
DEAL
HEAD OF
SALES HIRED
US NAVY
DEAL
NEW
STRATEGY
BREAK-EVEN
20
EMPLOYESS
TELCO
DEAL
FUNDRAISING
START
TERM SHEET
SIGNED
EQUITY
BUYOUT
EXIT
NEGOTIATIONS
DUE DILIGENCE
START
ACQUIRED
BY CISCO
Investment Case
The business need
- Sales & marketing expansion
- Research & development
- Access to international networks
- Improve corporate governance
Actions to create lasting value
- Active help since the first meeting
- Built a broad and competent ownership structure
- Strengthening of the sales team
- Active board-level work
- Buyout of a passive angel investor
- Support in exit process
Outcomes
- Built the leading IT security company
- The company now employs +30 people
- Expansion to global market that would have taken years organically
- Negotiation with top tier VC
- Sale of Cognitive Security to Cisco Systems after 20 months from the investment
- Large return on investment
Key Factors To Invest
People
Prove it
- strong product/market fit - first revenue - founders‘ dedication - angel funding
Problem
Payment
- security as a service (SME) - $ 2/4/5+ k/year - enterprise and OEM - $ 30/100/250+ k/year
Potential
Polymorphic malware
APT
Zero-day attacks
2009
Intrusion Detection/Prevention market segment
2013
$3.5b $2b
Shareholding Structure Development
40%
60%
Angel investor
Founders
Original, Aug-09
3%
12%
42%
44%
Board members
ESOP
VC investors
Founders
Final, Feb-13
+ earn-out
COSE Team In CISCO
- COSE sales operation taken up by CISCO
- COSE provided as CISCO technology
- Further integration with other CISCO security technology
- COSE will be integrated on the cloud - COSE will support CISCO SIO
COSE Team In CISCO
- International team of 30 young engineers, developers and scientists
- 5 (+5) Phds in Computer Sciencs/Artificial Inteligence
- Martin Rehak – Principal Engineer
- Michal Pechoucek – Director of Enineering
- Based at Charles Square, Prague
Thank You
Vladislav Jež Partner Credo Ventures Křížová 2598/4, Prague 5, 150 00 Czech Republic http://www.credoventures.com email: [email protected] mob: +420 737 238 278 http://cz.linkedin.com/in/vladojez @CredoVentures
