After months of disappointing trend lines, the fall in venture capital financing for cybersecurity businesses is finally turning around.
According to a recent Crunchbase study, cybersecurity firms raised around $1.9 billion in Q3 through 153 deals, up 12% from the $1.7 billion raised in Q2 through 181 sales.
Indeed, there are anecdotal reports of a turnaround. The Houston-based business Graylog, which creates instruments to assist in identifying, evaluating, and countering cyber security risks, said today that it has secured $39 million in a financing round that was co-led by Silver Lake Waterman, Piper Sandler Merchant Banking, and Harbert Growth Partners.
However, that “$39 million” number is a little deceptive. Graylog only extended the $18 million Series C round by $9 million in equity when it closed in June 2021. The remaining $30 million will be provided as a “flex debt” arrangement, according to Graylog CEO Andy Grolnick.
“The combination of equity and debt enables the company to continue its strong trajectory and bridge to profitability while minimizing dilution for investors and employees, especially considering that Graylog is almost cash-flow positive,” Grolnick stated. “The latest round represents a significant increase from the previous round, even though Graylog is not revealing its valuation.”
Lennart Koopmann, a software developer, started an open-source project called Graylog in 2009 to develop a more effective method for organizing and analyzing machine log data. In the end, Koopmann turned the open-source initiative into a business and founded Graylog, which, in late 2020, appointed Grolnick as CEO.
The primary goals of Graylog’s first product suite, which is still available, are error detection and IT troubleshooting through the collection, storage, and analysis of log data. However, the business just expanded into cybersecurity through a mix of acquisitions and internal R&D, releasing solutions for API threat monitoring, security analytics, incident investigation, and anomaly detection capabilities: Graylog API Security and Graylog Security.
Since its introduction in May 2022, Grolnick asserts that Graylog Security has accounted for more than 50% of Graylog’s net new client sales.
“Our business has been doing very well lately because our value proposition has struck a chord with companies searching for security solutions that are just as good at identifying threats as they are at controlling expenses,” Grolnick continued. “This has helped us get past some of the major obstacles that tech companies have faced in the past year.”
In the approximately $4.1 billion log management market, Graylog’s rivals include Elastic, Sumo Logic, Coralogix, Logz.io, and Humio, which CrowdStrike owns. Grolnick contends, however, that Graylog is ahead in momentum.
Graylog’s commercial and open-source technologies serve over 200,000 users and over 50,000 installations, he claims. Additionally, the U.S. Army, U.S. Air Force, Lockheed Martin, and SAIC are just a few of the major defense contractors the firm serves.
Grolnick anticipates that in the second half of 2024, the 110-employee Graylog—which witnessed a 67% year-over-year increase in new bookings in Q3—will have positive cash flow.
“There were several reasons why now was a good time to raise capital,” he stated. Initially, we desired to seize the chance to increase our market share in a setting where our expansion was quickening. Second, the procedure went well since both new and old investors showed a great deal of interest in us, given our present trajectory. The additional cash will spur expansion and create a profitable transition. Critical growth investments in product development, international sales, channel expansion, and customer success are being made with the additional funds.
