Cognitive Security Case Study

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*Cognitive Security Case Study*
_How venture capital can help to build the leading IT security company._

On January 30, Credo Ventures announces that Cisco Systems (NASDAQ:CSCO), the global leader in networking solutions for the Internet, intends to acquire Cognitive Security, Prague-based provider of network behavioral analysis software, for an undisclosed amount in cash and retention-based incentives. Credo Ventures has played a central role since it led the investment round in April 2011, joined by other investors including RSJ Private Equity and Evolution Equity.

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Cognitive Security Case Study

  1. 1. 30 January 2013 Vladislav Jež Partner, Credo Ventures Local to Global: Cognitive Security Case Study
  2. 2. Esther Dyson Chair about us Reshma Sohoni Board Member advisory board Stuart Chapman Board Member €18 million raised from over 30 high-net-worth individuals sold to CISCO Systems sold to Brand Embassy 3 Partners + 2 Associates office in Prague Credo Ventures - Credostage 1 Fund - /2011/
  3. 3. Key Factors For Building a Global Leader
  4. 4. University Spin-offs In CEE, Opportunities And Challenges Observations and experiments are performed Research University develops preliminary commercialization strategy Market assessment University may pursue patent protection Patenting University proactively approaches companies, entrepreneurs, and investors to bring the technology to market Prospecting Startup is created and compensation to university may involve fixed fees, milestone fees, royalties, equity, and other forms The deal Source: OTC (University of Texas at Austin) 5 Steps of Technology Commercialization
  5. 5. Cognitive Security a provider of Network Behavior Analysis products and services. It uses advanced Artificial Intelligence techniques to complement current firewalls and Intrusion Detection/Prevention security systems and to protect its users against modern sophisticated network attacks. Quick pitch: experts in Network Behavior Analysis Location: Prague, Czech Republic Funding: EUR 1 million (4/2011) Exit: sold to Cisco Systems (2/2013)
  6. 6. COSE Timeline COMPANY ESTABLISHED LICENSE AGREEMENT COGNITIVEONE LAUNCHED SILICON VALLEY COGNITIVEONE 2.0 DUE DILIGENCE START BUSINESS PLAN DRAFT TERM SHEET SIGNED VC INVESTMENT CISCO OEM DEAL VP SALES HIRED BULL DEAL HEAD OF SALES HIRED US NAVY DEAL NEW STRATEGY BREAK-EVEN 20 EMPLOYESS TELCO DEAL FUNDRAISING START TERM SHEET SIGNED EQUITY BUYOUT EXIT NEGOTIATIONS DUE DILIGENCE START ACQUIRED BY CISCO
  7. 7. Investment Case The business need - Sales & marketing expansion - Research & development - Access to international networks - Improve corporate governance Actions to create lasting value - Active help since the first meeting - Built a broad and competent ownership structure - Strengthening of the sales team - Active board-level work - Buyout of a passive angel investor - Support in exit process Outcomes - Built the leading IT security company - The company now employs +30 people - Expansion to global market that would have taken years organically - Negotiation with top tier VC - Sale of Cognitive Security to Cisco Systems after 20 months from the investment - Large return on investment
  8. 8. Key Factors To Invest People Prove it - strong product/market fit - first revenue - founders‘ dedication - angel funding Problem Payment - security as a service (SME) - $ 2/4/5+ k/year - enterprise and OEM - $ 30/100/250+ k/year Potential Polymorphic malware APT Zero-day attacks 2009 Intrusion Detection/Prevention market segment 2013 $3.5b $2b
  9. 9. Shareholding Structure Development 40% 60% Angel investor Founders Original, Aug-09 3% 12% 42% 44% Board members ESOP VC investors Founders Final, Feb-13 + earn-out
  10. 10. COSE Team In CISCO - COSE sales operation taken up by CISCO - COSE provided as CISCO technology - Further integration with other CISCO security technology - COSE will be integrated on the cloud - COSE will support CISCO SIO
  11. 11. COSE Team In CISCO - International team of 30 young engineers, developers and scientists - 5 (+5) Phds in Computer Sciencs/Artificial Inteligence - Martin Rehak – Principal Engineer - Michal Pechoucek – Director of Enineering - Based at Charles Square, Prague
  12. 12. Thank You Vladislav Jež Partner Credo Ventures Křížová 2598/4, Prague 5, 150 00 Czech Republic http://www.credoventures.com email: jez@credoventures.com mob: +420 737 238 278 http://cz.linkedin.com/in/vladojez @CredoVentures

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