OKENA

OKENA

Okena is an intrusion detection company based in Waltham, MA. It was launched in 2001 and acquired by Cisco Systems in January 2003 for $154 million.

Company

Network protection from intrusive and malicious software attacks has long been a problem, both at server and desktop levels. While antivirus, firewall and intrusion detection products provided some barrier of protection, none were invulnerable or easy to administer. More fatally, all required prerecorded attack signature data – meaning that networks and computer users remained vulnerable to previously unknown attacks. The team at Okena, an early stage security software company, had conceived the notion of intrusion prevention using the approach of intervening in the actual executed actions of all applications, preventing unauthorized behavior.

We knew that developing a new category in the massive and crowded security software industry was a daunting challenge, but we recognized the leadership of Shaun McConnon and the experience and cohesiveness of his team. The team had together built Raptor Systems to an IPO and a successful acquisition in the firewall market. Our due diligence with major CIOs confirmed the potential effectiveness and novelty of Okena’s approach.

Financing

In September 2001, we co-led a $12.5 million financing at a time when the VC industry had largely retreated from early stage investments. One week after closing of our investment, the 9/11 tragedy precipitated a retrenchment of the technology market and the entire economy. Okena’s technology was in a category (Intrusion Prevention) that was not yet widely recognized, and had no established budget within the enterprise.

Corporate Governance

We provided assistance in directing the company’s product positioning, helping the team stay focused on revenue business models for the enterprise rather than following the dot-com trend of offering freeware over the Internet. We assisted with large early customer accounts and co-led a follow-on insider financing of $4 million in September 2002. The company had made significant progress and the outside funding environment remained difficult; we were happy to stand by our entrepreneurs. Luckily, the Okena team started to generate significant revenues thereafter from key customers, leading to strategic OEM discussions.

Exit

Cisco Systems was a key OEM partner. We worked closely with management to negotiate an acquisition by Cisco on favorable terms. The company was acquired in January for $154 million, providing a cash return of 6x our investment of $3.2 million, 2003 – a year and a half after our initial investment.