Applied Identity Adds $8M

2005 is looking like a good year for security startups. Data center specialist Applied Identity is the latest vendor to bring in the money, clinching $8 million in its first VC-backed funding round (see 2005: Smiles for Software Startups and Startup Skybox to Raise $10M).

Led by Bay Partners and Sigma Partners, the funding dwarfs the $2 million Applied Identity received from angel investors in 2003. The cash will be used to help establish a stronger presence in the security market, says the companys CFO Greg Patti. “The core development work is done -- we are using the money primarily for sales and marketing,” he says.

Applied Identity’s flagship offering is the Identiforce gateway device. The 2-rack-unit-high box sits behind a firewall, but, whereas many security products are tailored to external threats, this one deals with the internal network.

The challenge of securing internal networks was a major talking point at this publication's Next-Generation Data Center Forum event last month in New York. Many firms struggle to deal with security breaches caused, either deliberately or accidentally, by their own employees.

The Identiforce device works with software such as Microsoft Corp.’s (Nasdaq: MSFT) Active Directory to divide the network into different segments. It can then limit and control access to these segments as defined by specific users, such as the network manager or even CFO, says Patti. This can also limit the spread of external threats like worms, he adds.But Applied Identity is not the only vendor playing in this space. Networking giant Cisco Systems Inc. (Nasdaq: CSCO) is a rival, along with fellow startup Caymas Systems Inc., which emerged from stealth just a few months ago (see Startup Looks to Solve Identity Crisis).

Patti says that Applied Identity will let its technology do the talking. “We don’t have to drop the price to get deals,” he says. However, he remains tight-lipped on actual customer numbers: “We have got enough."

The exec was slightly more forthcoming on Applied Identity’s plans to expand its business. “At the moment we have got about 20 employees and we will grow that to 30ish over the next six months."

Applied Identity was founded by Dennis Pollutro, who now serves as the firm’s CTO. Prior to founding the firm, Pollutro spent more than six years running consulting firm Cyber Business Solutions, where he worked as a “white hat” hacker.

The funding comes after a busy 2004 for Applied Identity, which saw the firm shift its headquarters from one side of the U.S. to the other. Erie, Pa., had been the company’s base since its creation in 2002, but the firm moved to San Francisco last July. “The talent and the capital are more readily accessible in the Bay Area,” says Patti. [Ed. note: Even more than in the Erie area? Go figure.] However, he adds, there are now plans to turn the Erie site into the firm’s technical support office.Last year, the company unveiled both the Identiforce device and a shiny new CEO, Brian Nugent. Prior to joining Applied Identity, Nugent was senior vice president of sales and field operations at security appliance manufacturer Teros Inc. and senior vice president of sales at Atrica Inc.

So, when will Applied Identity next tap into the VC market? “I would love the answer to be 'never,' but it looks like it’s probably going to be 18 months,” says Patti, who notes that profitability is about five quarters away.

— James Rogers, Site Editor, Next-Gen Data Center Forum