Lacework Scores $525M in Security Battle Against Palo Alto Networks

Cloud security startup Lacework closed a $525 million Series D funding round that brings its total raised to just over $600 million and pushed its valuation “well over $1 billion,” according to CEO Dan Hubbard. Cloud security startup Lacework closed a $525 million Series D funding round that brings its total raised to just over $600 million and pushed its valuation “well over $1 billion,” according to CEO Dan Hubbard. The latest investment follows two years of more than 300% revenue growth from customers including VMware, Arista, Pure Storage, and Snowflake — Snowflake Ventures is also an investor and its participation in the funding round marks its largest strategic information security investment to date at $20 million — and Hubbard’s already set his sights on a third year of triple-digit growth. He also plans to double the company’s staff, from about 200 now to more than 400 by the end of the year, and grow Lacework’s engineering and R&D teams across the U.S. and Europe. “Lacework is going after one of the largest IT trends in history: people that are either operating their infrastructure inside of the public cloud or are adopting cloud-native technologies like Kubernetes and containers,” Hubbard said. “And we are helping those customers secure all of that infrastructure. We’re bullish on gaining market share in a $10-billion-plus [total available market] that’s growing faster than any other segment of the security markets.” Lacework is a 6-year-old startup based in San Jose, California. It developed a cloud security platform that provides several capabilities including cloud security posture management, vulnerability scanning, cloud-workload protection, threat detection and response, runtime and build-time threat defense, and identity and access management across Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and Kubernetes- and container-based environments. These multiple capabilities mean Lacework plays in several different security sectors, and for customers it means that using Lacework’s platform can reduce the number of other security tools they need to deploy across their IT environments. It competes against Palo Alto Networks — the largest security vendor by revenue in the world — as well as a handful of smaller, cloud-native security startups that provide some, but not all, of the capabilities that Lacework does. “They’re either compliance for the cloud, or build-time security for the cloud, or vulnerabilities for the cloud, or Kubernetes security,” Hubbard said. This puts Lacework in a unique spot, and according to Hubbard gives it a distinct advantage over Palo Alto Networks as well as its smaller, single-category competitors. “Palo Alto Networks appear to have the same thesis that we do, and they are building a second franchise, if you will, to their firewall franchise, based off of the cloud,” he said. “They believe that a platform is going to be a winning formula, they just come at it very differently, and they really became a competitor because they bought five other companies in our space.” Lacework, on the other hand, built its DevOps and cloud security platform from the ground up. It didn’t acquire technology from other companies, and therefore didn’t need to worry about integrating all the pieces into a single platform. Additionally, Hubbard points to a technology Lacework calls Polygraph as its Lacework’s secret sauce. Polygraph essentially collects machine, process, and user interactions to develop behavioral models at scale and update them over time. It then monitors infrastructure, looks for anomalous behavior, and generates alerts with severity scores. It also maps out events, called polygraphs (get it?), to make it easy to visualize the who, what, where, and how far a security event moved in the customer’s environment. “And it’s all based off of a single platform as a single UI and single API, with the thesis being that the operating model of the cloud is very different, and is very API centric, and so if you build the platform right, you can do many things across many categories,” Hubbard said. Sutter Hill and Altimeter Capital led Lacework’s Series D, and were joined by D1, Coatue, Dragoneer Investment Group, Liberty Global Ventures, Snowflake Ventures, and Tiger Capital. The $525 million investment follows a $42 million Series C round in September 2019, and a very strange 2020 for the company and, indeed, the entire world. “On January 5, 2020, we moved into an incredible new office, and on March 9 we left,” Hubbard said. At the time, less than 100 employees worked at Lacework, and since the start of the pandemic, it’s another 120. “We’ve hired an incredible amount of people, and haven’t met any of them in person,” Hubbard said. “We haven’t been to any trade shows, we haven’t visited any customers. I haven’t signed a salesperson’s expense report in nine months now.” So Lacework got creative and adapted to the new normal, he added. “A lot of this is really just a modern way that I think things are going to be like moving forward, post COVID,” Hubbard said. In addition to changing the way vendors like Lacework do business, COVID-19 also changed the ways their customers do business, which is now primarily cloud based and remote. “COVID was a forcing function to migrate to the cloud,” Hubbard said. This will undoubtedly continue into 2021 and bodes well for security vendors like Lacework. But while most customers initially buy Lacework to secure their public cloud infrastructure, “they then realize the net value of that, and then use us in their private data center,” Hubbard said. “Because cloud native is becoming such a popular way to deploy and manage infrastructure, this is a way to bring benefits of the cloud to themselves.”