Hosted Security Provider Secures Another $50 Million

The premise that businesses need a one-stop shop for hosted security services, vs. using traditional software packages managed in-house, is a $100-million-plus idea to Goldman Sachs Group and a couple others.

An investment of more than $50 million by Goldman (NYSE: - ), Bessemer Venture Partners and Stripes Group is due to be announced on Thursday by Perimeter eSecurity. The investment is tied partly to Perimeter's recent acquisition of messaging services provider USA.net. This is in addition to $50 million that Goldman put into Perimeter within the last month.

Milford, Conn.-based Perimeter hosts more than 50 different security applications that small and midsize businesses can subscribe to as a service. The services cover areas such as vulnerability management and intrusion prevention, as well as network, e-mail, system and user security. Perimeter's 4,000 customers on average spend $750 per month. Its services replace software that customers would otherwise have to buy, install and maintain on their own.

Some of Perimeter's technologies are homegrown but others are adapted from the open-source world and the wares of well-known security providers such as Symantec (NasdaqGS: - ), Websense (NasdaqGS: - ) and Trend Micro. They get revenue from Perimeter.

Backers say they see promise in hosted security services such as Perimeter's partly because small and midsize businesses need security but can have a hard time managing its many different aspects.

"If you look at the state of computing security in businesses today, the small and middle-sized business segment is way behind the Fortune 2000 in securing their desktops," said David Cowan, managing partner of Bessemer. "That is because they don't have the same vast IT staffs to assess and integrate IT security. In order to meet the needs of those small and middle-sized business segments, security must be delivered on demand."

By using a hosted, on-demand service, companies can pay as they go and not have to worry about maintaining and upgrading software.

Cowan says Perimeter is the first company that offered a broad suite of on-demand security services.

"We're the buffer between the client and the Internet so all the traffic from the client to the Internet passes in and out of us. Think of us as a scrubbing center where bad things coming from the Internet to the client get scrubbed out by us," said Perimeter Chief Executive Brad Miller. "We would offer the top 50 security technologies really no differently maybe from the way you use your cable provider at home (choosing different tiers of channels and service packages)."

Perimeter started in the late 1990s, long before on-demand, also called software-as-a-service, became popular. The company's revenue rate is approaching $40 million annually, Miller says. He says his field is largely untapped, but acknowledged that others, including some biggies, have shown interest.

"I've heard IBM talk about security on demand," he said. "I've heard AT&T talk about security in the cloud. But I've never seen them in the marketplace."

Some of Perimeter's funding will go toward its acquisition of privately held, Colorado Springs, Colo.-based USA.net, a provider of e-mail and other messaging-related services.

Its technology will beef up Perimeter's messaging security. It will also bring Perimeter about 1,300 more customers, and Perimeter hopes to sell more services to USA.net customers.

"Partly what's unique about the combination between USA.net and Perimeter eSecurity is that we offer software-as-a-service in basically two different areas, with very, very little overlap," said David Ramon, chief executive of USA.net. "With the combination of services, we'll have over 5,000 customers."

Both Perimeter and USA.net find that a quarter or more of their new bookings come from existing customers buying additional services, Miller says.

Many of Perimeter's clients are banks. It's looking to expand into related industries.

At least one Goldman Sachs unit will become a Perimeter customer as a result of the acquisition, Miller says.

"There was an opportunity to leverage access into an adjacent market for us -- brokerages," he said. "Banks were a great initial market for us. They're obviously a business that requires security."

Besides financial services, Perimeter's customers include firms in network services and health care, as well as some nonprofits.

"Typically we want industries that have a real reason to need us," Miller said.

Backer Bessemer's past tech investments include messaging services provider Postini, which Google (NasdaqGS: - ) is buying for $625 million.

"Postini has done a good job specifically because it does offer services on demand," Cowan said.

Stripes Group has been looking specifically to invest in software-as-a-service businesses, says its president, Ken Fox.

"It's our view that security and messaging in particular are two sort of core mission-critical applications every small, medium and large business needs," he said. "Perimeter really is the only company out there positioned to be a one-stop shop."