Carmel-based tech security firm acquired for $40M

Carmel-based technology firm Emerging Threats Pro LLC has reached an agreement to be acquired by Sunnyvale, California-based Proofpoint Inc. for $40 million in cash and stock, the companies announced Monday morning.

Founded in 2003, Emerging Threats provides Web-based malware and threat-intelligence products to equipment manufacturers and other clients around the world.

The company has 25 full-time employees at its recently opened headquarters in Parkwood Crossing Business Park on East 96th Street.

Emerging Threats’ researchers, software engineers and sales personnel will continue to operate from Carmel after the acquisition, which is expected to close within two weeks, the companies said.

Proofpoint, founded in 2002, is a publicly traded data-security software firm that sells cloud-based products to a wide array of industries.

The company reported an annual loss of $64.2 million in 2014. Annual revenue rose 42 percent, to $195.6 million, boosted by the acquisitions of Nexgate Inc. for $35 million and NetCitadel for $24 million.

"Better cyberattack intelligence enables better cybersecurity," Gary Steele, CEO at Proofpoint, said in a written statement. "Proofpoint's market-leading advanced threat detection and response products for email and social media security and compliance will be further enhanced by pairing them with Emerging Threats' deep research and intelligence capabilities."

Ken Gramley, CEO of Emerging Threats, will join Proofpoint as a vice president.

"Proofpoint is a great company for us because they see the beginning of what we call the security-attack chain; we see the end," Gramley, 53, said in a phone interview Monday morning. "So, by combining our two companies together, it's going to give us a solution that's going to allow our customers to see and respond to the entire attack chain."

Gramley said Emerging Threats has about 500 clients, including 35 Fortune 500 companies. Its average membership renewal rate is about 97 percent.

Emerging Threats signed an incentives agreement with the Indiana Economic Development Corp. late last year to create up to 84 high-wage jobs by 2019 at its new headquarters after moving most of its operations from Lafayette.

IEDC offered Emerging Threats up to $1.55 million in conditional tax credits and up to $90,000 in training grants based on the company’s job-creation plans. IEDC said the company had base employment of 11 when it began discussing incentives, which means it needs to have 95 employees by the end of 2019 to qualify for the incentives.

The company said it planned to invest $967,000 to lease and equip 4,000 square feet of office space at the new site, allowing it to expand its product-and-development team, customer-service operations and inside-sales department.

The company has received increased attention in innovation and investing circles in recent years. In 2012, Network World named it one of six security firms to watch. In 2013, it landed venture capital, and this year it received an additional infusion of funding from Elevate Ventures and HALO Investor Group.

One of its directors is Bill Godfrey, who was CEO of locally based marketing software firm Aprimo before its $525 million sale to Teradata in 2011.

Emerging Threats didn’t start as a business. Initially, Matt Jonkman, now Emerging Threats’ chief technology officer, founded it as an open-source community—a project dedicated to collecting a database of threats and rules so that networks could fend off the increasingly sophisticated malware attacks on their platforms.

The database got the attention of the Army Research Office and the National Science Foundation, which in 2008 provided grants to further Emerging Threat's work.

Emerging Threats raised $2.15 million in two venture funding seed rounds, with the most recent round closing in May. Gramley declined to disclose the most recent valuation of the company, but said it was "well under $40 million," and in the single-digit millions.

Elevate Ventures, which invests state and federal funds in Indiana companies, took the lead on investing in Emerging Threats in 2012 when "other investors were cautious," Allos Ventures Managing Director Don Aquilano said.

Elevate invested $840,000 in the firm to date.

"This is our biggest exit so far, both in terms of cash-on-cash multiples and internal rate of return," Elevate Chief Investment Officer Ting Gootee said.

Elevate also groomed Gramley to lead the company. Gramley worked with a variety of startups in North Carolina before Elevate recruited him to be entrepreneur-in-residence.

Gramley said the company's Indiana work force will continue to grow.

"Part of the deal, from our standpoint, was we weren't going to move," he said, "and they we're absolutely fine with that."

Proofpoint shares were up 30 cents Monday morning, to $56.94 each, and are up 20 percent since the beginning of the year.