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To: Thomas Mercer-Hursh who wrote (53427)	1/14/2003 5:57:16 PM
From: stockman_scott	Respond to of 54805

Briefing: digital defenses VC Whispers Due to government and corporate demand, there's a VC market for data and network security startups. By Julie Landry The Red Herring January 13, 2003 redherring.com Will the businessman of the future have anything in common with the soldier of tomorrow? Probably not, and therein lies the paradox of venture capital investing in defense-related technologies. President Bush's 2003 budget allocates $37 billion for homeland security, of which $722 million alone is for using technology to share information between departments. But despite the allure of committed dollars in an otherwise parched spending environment, VCs are wary of investing in startups that could be held captive to a government agency or military customer. "If you sell a new encryption technology to the Department of Defense, I can guarantee you won't be allowed to sell it anywhere else," says Jonathan Silver, a cabinet adviser for the Clinton administration and now a general partner at Core Capital Partners, a VC firm based in Washington, D.C. Most VCs have broadened their definition of defense-related investments to include most anything related to data protection or enterprise network security. Their position is that the government and military--not to mention private companies and their backers--are better served with advanced computer security products developed for commercial markets and then modified for defense use. And few VCs are venturing anywhere near bioterrorism-related technologies like vaccines and biosensors, saying such expensive advanced research is best left to universities and large companies. "Homeland security and protecting the commerce that goes on across the Internet are highly interrelated," says Marc Sokol, a partner at the VC firm JK&B Capital, which has made six investments in security software companies in the last two years. "A lot of the largest companies have much of their back offices exposed to the Internet." Mr. Sokol isn't the only VC focusing on backing defense-related technologies that address businesses' need for secure networks and databases. According to the research firm Thomson Financial/Venture Economics, 102 security-related companies raised a combined $810 million in the first three quarters of 2002: $483 million for security software, $267 million for Internet and transaction security, and $60 million for computer security services. Again, these investments aren't focused strictly on government priorities, but rather on what's seen as broad demand--from both large companies and government agencies--for protection of information infrastructure. In the past, this approach to investment has played second fiddle to cost savings and revenue generation. "What we've seen since September 11 is an increase in the perception of threat, and therefore a greater willingness to spend," says Scott Sandell, a general partner at the VC firm New Enterprise Associates. He says both corporate and government customers are opting to purchase select cutting-edge security tools, rather than an integrated suite of software products. That, in turn, makes the market much more suited for startups building a single tool or software product. Over the last 12 months, NEA has focused investments in network-protection startups like Trojan-virus monitoring from WholeSecurity, an extranet appliance from Neoteris to protect communication between businesses, and secure storage network technology from Decru. A similar strategy was behind the spin-off of Network Associates Technology's email encryption division, Pretty Good Privacy, into a new company backed by $14 million from investors including Doll Capital Management and Venrock Associates. Startups are also moving quickly to develop wireless security products, viewing untethered access as an area in which security could be integrated early in the development phase, rather than layered on in later stages, as is done with Internet security. Among the companies raising venture cash in 2002 for these endeavors were I-Control Security (a $12.5 million second round from the venture arms of Nokia and Ericsson); Vernier Networks (a $24.2 million third round co-led by Allegis Capital and Financial Technology Ventures); and Cranite Systems (a $12 million third round led by JK&B Capital). Some investors--including Ray Rothrock, a general partner at the VC firm Venrock Associates and founding investor in the firewall leader Check Point Software Technologies--have hesitated to place bets here, saying wireless security will eventually be embedded in the hardware, or even in the chips. Elsewhere, there's been a wave of consolidation in the security market, especially in companies with technology for protecting communication networks. The security products maker Symantec spent more than $370 million to acquire four security startups in July, and the applications integrator NetIQ acquired security software upstart PentaSafe Security Technologies for $255 million in October.

To: Thomas Mercer-Hursh who wrote (53427)	1/14/2003 6:22:35 PM
From: stockman_scott	Respond to of 54805

Hardware Hangover By Harry Goldstein spectrum.ieee.org System complexity is driving customers and vendors to seek solace and solutions in software.

To: Thomas Mercer-Hursh who wrote (53427)	1/17/2003 9:16:21 PM
From: stockman_scott	Respond to of 54805

Software vendor consolidation continues: "Bigger vendors in various sectors with more products and features are helpful to IT buyers. Jack Corrie, CIO of Calpers, the California Public Employees' Retirement System, was so frustrated with integration hassles that he undertook a two-year effort to move to nearly 100% Oracle, ripping out other vendors' installed apps. "The maintenance and support costs for the software products we loaded into this hybrid environment became unbearable and kept me up at night," he says. "Now the SAPs, Oracles, and Microsofts are moving to stacks of applications and suites of technology, and that simplifies our job." informationweek.com