Q3 2015 Demand From Private and Public Equity Investors Continues to Surge

In This Report Public IT security companies have

S&P 500 as well as the technology marketsignificantly as a whole outperformed the IT Security

November$27.5 billion 2011 of market capitalization created by IT security IPOs since Notable $75M+ private capital raises

among others from Tanium, CloudFlare, Zscaler, FRONT LINE INSIGHTS

IT Security Q3 Update: Demand From Private and Public Equity Investors Continues to Surge

Across all stages of the Public equity markets remain highly active and accommodative corporate life cycle, investors Institutional Venture Partners, have shown an incredible T. Rowe Price, TPG Capital, and appetite for IT security Andreessen Horowitz. CloudFlare, Over the past four years, public companies with highly CrowdStrike, Netskope, Okta, and Zscaler also completed private capital equity markets have been extremely differentiated technologies raises ranging from $75 million to receptive to new issues from IT or differentiated $110The intense million interest during thein IT third security quarter. security firms. This trend has business models. continued to drive the outperformance of IT security stocks so far in 2015. has also manifested itself through Dating back to Imperva’s November the formation of venture funds 2011 IPO, 14 of the last 24 IT This robust demand has resulted in that are focused exclusively on the companies.infrastructure1 IPOs have involved continued inflows of private capital sector. This summer Trident Capital IT security or security-related into IT security and extremely active announced that it is looking to raise and accommodative public equity $200 million to launch Trident Capital markets over the first three quarters Cybersecurity Fund I, the firm’s first Despite this robust activity, investor of 2015. In this quarter’s report, we fund dedicated to the sector. demand still seems to far outweigh the thatanalyze are recentshaping activity the capital-raising across private Collective Market Capitalizations of IT Security IPOs Since and public equity markets and trends November 2011 (in billions) environment. We also explain how The 14 IT security or security-related companies that have gone public over the the stage is set for the next wave of past four years have combined to create $25.7 billion of market capitalization Privateconsolidation capital in continuesthe industry. to flow for investors. into IT security $17 $15 $13 privateIn our 1Q capital – 2015 into report, the IT we security highlighted the increasing inflows of $11 $9 industry over the past several years. From 2010 to 2014, venture capital $7 investments in the industry increased $5 at a compound annual rate of 25%, $3 reaching approximately $1.9 billion in

2014,This momentum according tohas Pitchbook. certainly $1

$0 substantial private capital raises RPD CYBR IMPR MOBL VRNS CUDA FEYE GIMO QLYS PANW(1) SPLK PFPT BLOX IMPV continued so far in 2015, and several Market Cap at Time of IPO Current Market Cap were completed in the third quarter. Source: Capital IQ On September 2, Tanium announced a1 $120 million investment from Despite robust recent supply of publicly traded IT security traditional consolidators (Cisco, Intel, activity in public equity companies. As a whole, these 14 Symantec, et al.) to increase their markets in the industry, IT security IPOs have significantly acquisition efforts to maintain their investor demand still outperformed all technology IPOs technology edge. Next-generation seems to far outweigh the since 2011 and the U.S. stock market. consolidators such as Palo Alto For the last 12 months ending Networks, FireEye, and Proofpoint supply of publicly traded September 23, 2015, this collection of recognize that their long-term viability IT security companies. IT security and security-related IPOs depends on their ability to evolve was up 37.1%, despite experiencing from a focus on point products to a a sharp pullback during the volatility platform orientation. We predict that isthat particularly rattled the impressive stock market when in August these next-generation companies will and September. This performance be active acquirers as they look to become more solution-oriented. considering that over that same span, the index of technology IPOs since We will examine these and other 2011 is down 10.7% and the S&P 500 trends shaping the IT security M&A is down 3.0%. landscape in much greater detail in next quarter’s report. In the meantime, investors.IT security The companies collective have market created if you have any questions about the a tremendous amount of value for dynamics affecting the capital-raising and deal-making environment, please capitalization of the 14 companies has do not hesitate to contact us. increased a staggering $27.5 billion from IPO through September 21, 2015. Investors are focused on companies with differentiated technology, such as Palo Alto Networks and CyberArk Software, or differentiated business models, such as Barracuda Networks and Rapid7. companies with these characteristics As the backlog of emerging IT security continues to grow, the heightened activity in public equity markets ITshould security continue companies over the will next launch several quarters. We expect that three or four

IPOs over the next two quarters. As always, however, the IPO window will be determined largely by Themacroeconomic coming wave conditions. of IT security 1 consolidation

We believe that recent capital-raising The 14 IT security or security-related IPOs since November 2011 are: Imperva, Infoblox, Proofpoint, Splunk, activity and other industry dynamics Palo Alto Networks, Qualys, Gigamon, have set the stage for an increase in FireEye, Barracuda Networks, Varonis IT security M&A activity over the next Systems, MobileIron, Imprivata, 12 to 24 months. The ongoing, rapid CyberArk Software, and Rapid7 evolution of IT security will force William Blair 2 ANALYSIS

IT Security IPOs Deliver Stellar Performance

Fourteen IT security or security-related companies have gone public since November 2011, and collectively these companies have significantly outperformed not only the broader stock market but also all technology IPOs since 2011.

Last 12 Months 170 160 IT Security IPOs: +37.1% 150 Tech IPOs: -10.7% S&P 500: -3.0% 140 130 IT Security – 120 Market Analysis 110 100 Each quarter we look behind 90 the numbers to examine the 80 9/14 10/14 11/14 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 market dynamics that are driving trends in the capital- S&P 500 Technology IPOs IT Security IPOs raising and deal-making Since November 2011 landscape in IT security. 400 350 IT Security IPOs: +210.8% 300 Tech IPOs: +33.3% 250 S&P 500: +57.7% 200 150 100 50 0 11/11 3/12 7/12 11/12 4/13 8/13 12/13 4/14 9/14 1/15 5/15 9/15 S&P 500 Technology IPOs IT Security IPOs

Source: FactSet; data through September 23, 2015

3 Private Capital Continues to Flow into IT Security

From 2010 to 2014, venture capital investments in the industry increased at a compound annual rate of 25%, according to Pitchbook. The inflow of private capital has continued throughout 2015. We have detailed selective private capital raises of between $75 million and $120 million were announced during the third quarter below.

Announced Target Business Description Investor(s) Amount 07/13/15 CrowdStrike CrowdStrike is a leading provider of Accel Partners; Warburg Pincus; $100 next-generation endpoint protection, Rackspace Hosting; Google Capital threat intelligence, and services focused on preventing damage from targeted attacks. 08/03/15 Zscaler Zscaler operates a cloud-based TPG Capital $100 Internet security platform. 09/02/15 Tanium Tanium provides security and systems Institutional Venture Partners; $120 management solutions to allow real- T. Rowe Price; TPG Capital; time data collection to enterprises Andreessen Horowitz and Fortune 500 customers.

09/03/15 Netskope Netskope provides a SaaS-based Accel Partners; Lightspeed Venture $75 platform that helps people get and Partners; The Social+Capital use their favorite cloud applications Partnership; ICONIQ Capital safely. 09/08/15 Okta Okta provides on-demand identity Glynn Capital Management; Sequoia $75 and access management services in Capital; Khosla Ventures; Andreessen the United States. Horowitz; Altimeter Capital Management; Greylock Partners 09/22/15 CloudFlare CloudFlare offers a content-delivery Google Capital; Microsoft; Baidu; $110 network with security features. Qualcomm Source: Capital IQ

William Blair

William Blair 4 WILLIAM BLAIR INVESTMENT BANKING

William Blair By the Numbers

Drawing on our deep sector expertise and the strength of our relationships, William Blair has built a leading 300+ IT security franchise. bankers globally with local cultural knowledge Selected transaction experience:

$118,680,000 $200,000,000 $676,959,000 2,000+ completed advisory Initial Public Offering Convertible Bond Offering Initial Public Offering and financing transactions Follow-on Offerings

$ 2015 2015 2014-2015 200+ billion in transaction value for our clients $205,000,000 Not Disclosed Not Disclosed

has been acquired by has been acquired by has merged with

2014 2014 2014

$85,698,000 $196,350,000 Not Disclosed

Initial Public Offering Follow-on Offering has sold a majority stake to

2013 2013 2012

Not Disclosed $186,000,000 $150,000,000

has received a majority investment from has been acquired by has been acquired by

2012 2012 2010

5 “Most Trusted Research” With more than 150 senior bankers around the world, William Blair has completed more than 2,000 advisory

and financing transactions totaling William Blair was ranked No. 1 for “Most Trusted Research” in the 2014 Greenwich Associates survey of small and mid-cap portfolio managers. more than $200 billion in value for William Blair was also ranked No. 1 for “Greatest Knowledge of Companies our clients* and Industries” and “Best Tailored Research Calls.” Dan Daul Managing Director Our analysts cover more than 120 technology companies across the following• industries: [email protected] • Communications equipment, hardware, and software infrastructure +1 312 364 8457 Scott Stevens • Cybersecurity and security technology • Managing Director Digital media and Internet • Financial technology [email protected] +1 312 364 8337 • Internet infrastructure and communications services • Drew Thomas IT and business process services Director • Semiconductors and wireless [email protected] RelevantSoftware research and coverage:SaaS +1 312 364 8633 • • Imprivata Networks Barracuda • • • InfobloxPalo Alto • Check Point Networks • Citrix • CyberArk • Proofpoint • Software • Rapid7Splunk • EMC • Symantec • FireEye • VMware • Fortinet • GigamonImperva

*In the past five years as of July 1, 2015 William Blair 6 Disclosure

“William Blair” is a trade name for William Blair & Company, L.L.C., William Blair Investment Management, LLC and William Blair International, Ltd. William Blair & Company, L.L.C. and William Blair Investment Management, LLC are each a Delaware company and regulated by the Securities and Exchange Commission. William Blair & Company, L.L.C. is also regulated by The Financial Industry Regulatory Authority and other principal exchanges. William Blair International, Ltd is authorized and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom. William Blair only offers products and services where it is permitted to do so. Some of these products and services are only offered to persons or institutions situated in the United States and are not offered to persons or institutions outside the United States.

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William Blair’s investment banking group combines significant transaction experience, rich industry knowledge, and deep relationships to deliver successful advisory and financing solutions to our global base of corporate clients. We serve both publicly traded and privately held companies, executing mergers and acquisitions, growth financing, financial restructuring, and general advisory projects. This comprehensive suite of services allows us to be a long-term partner to our clients as they grow and evolve. From 2010-2014, the investment banking group completed more than 330 merger-and-acquisition transactions worth $73 billion in value, About William Blair involving parties in 36 countries and five continents, was an underwriter on more than 20% of Investment Banking all U.S. initial public offerings, and raised nearly $100 billion in public and private financing.