Security Startup Goes Solo

Not all startups follow the well-beaten path to the doors of venture capitalists. Take San Antonio, Texas-based Digital Defense Inc., which this week unveiled the latest version of its Frontline vulnerability management service (see Digital Defense Simplifies Risk Management).

Digital Defense has managed to survive without VC funding since 1999, when former U.S. Air Force officer Rick Fleming and one-time Zenith Data Systems exec Joseph Cooper founded the company. Frontline is a subscription-based service that checks users' networks for security weaknesses.

Subscribers can monitor routers, firewalls, email, and Web servers, and can even test VOIP phones and search for wireless devices, according to Cooper.

Digital has made it so far on $4 million from a group of angel investors in San Antonio, plus its own revenue. CEO Cooper says Digital Defense will achieve revenues of $3.5 million this year, with growth of 30 percent to 40 percent expected for 2005.

Digital Defense installs an appliance behind the customer's firewall that assesses networked devices. This information is then sent back to Digital Defense's San Antonio data center, where customers can access it via a secure Web interface.However, Digital Defense is not the only vendor playing in this space. Security specialist Qualys Inc. already offers an extensive range of products geared towards enterprises, small businesses, managed services providers, and professional services organizations. Foundstone, a division of McAfee Inc. (NYSE: MFE), is also targeting firms' security vulnerabilities.

Cooper denies that the vulnerability management software guys are leaving themselves vulnerable without VCs. "When you get a VC involved, the pressure becomes providing an exit and a return for them, rather than developing the product," he says.

The VC route offers both pluses and minuses to startups. Besides funding, VCs help form strategy, make contacts that can lead to sales, recruit executives, and swing the types of deals that can take a company public or lead to an acquisition. But on the downside, private companies give up control and get financially diluted when they take VC money.

Digital Defense is not the only company going its own way. Earlier this week, privately funded startup Epok Inc. launched its flagship security product, and a number of storage vendors are also thriving without VC funding (see Epok Embarks on Data Security Drive and They Don't Need No Stinkin' VCs).

Still, when it comes to VCs, Cooper will never say never. "We're always looking for possibilities that could accelerate the growth of the company," he says.James Rogers, Site Editor, Next-gen Data Center Forum