Cybersecurity continues to be a significant need for businesses all over the world, especially as a hybrid workforce becomes the norm. Companies will increasingly rely on cybersecurity platform developers and service providers to keep them safe, creating new demand for startups in the field.
The problem is that pure equity financing is becoming harder for startups to find because of the risk. Investors aren’t willing to take on as much risk due to the volatile market, forcing startups to get creative as they seek funding.
Cybersecurity startup Arctic Wolf is a firm that’s currently finding a path forward in this challenging environment. This guide looks at how Arctic Wolf is progressing and examines investors’ expectations for the company in the coming years.
What Is Arctic Wolf?
Arctic Wolf is a Minnesota-based cybersecurity firm offering software and services to midsize enterprises that can’t invest in a full-time security staff. The company’s services take an operational approach, offering a one-of-a-kind system-of-record platform that uses data from the company’s endpoints, networks, and cloud environments to provide an overview of all cybersecurity threats.
Investors see significant value in this platform and Arctic Wolf’s other security offerings, helping the company raise $900 million through its various funding rounds. The goal is to bring Arctic Wolf’s next-generation products to even more buyers and larger markets in the coming years.
How Arctic Wolf Is Progressing
Arctic Wolf is already experiencing significant growth in its early stages. The company has over 3,000 global customers and is looking to expand even further as it begins targeting larger enterprise markets. Some ways cybersecurity startup Arctic Wolf is progressing include the following:
Doubled Its Revenue
Arctic Wolf isn’t releasing its revenue numbers, but there’s a belief that the company doubled its revenue year-over-year between 2021 and 2022. The firm reported $200 million in annual recurring revenue in September 2022, but its actual revenue numbers could be far greater than that. Investors should know that Arctic Wolf is making money and growing at the same time.
Expansion in New Regions
The firm is currently establishing itself in new markets, which is one reason for its rapid growth. Arctic Wolf has customers in industries like healthcare and manufacturing and has recently entered South Africa and Australia as a cybersecurity service provider. We can expect the company to begin marketing in more countries shortly.
Secured $401 Million in Convertible Debt
Pure finance equity is becoming more challenging for startups to find because of high interest rates, so Arctic Wolf opted for $401 million in convertible debt notes from Owl Rock during its last funding round. This setup allows Arctic Wolf to borrow money and give the investor a discount on shares once the company goes public in return. The benefit is that Arctic Wolf won’t have to repay the principal plus interest in the future.
Valuation of $4.3 Billion
Arctic Wolf has a current valuation of $4.3 billion, a significant increase from its $1.2 billion valuation prior to its July 2021 Series F funding round. This valuation makes the company a cybersecurity unicorn and puts it on track for a potential initial public offering (IPO) in 2023.
Arctic Wolf is making financial progress due to its quality product offerings. This progress sets some lofty expectations for the firm as cybersecurity becomes an essential service for companies of all sizes.
Four Expectations for Arctic Wolf in the Cybersecurity Industry
The maturation Arctic Wolf is experiencing also means expectations are growing. We’ll certainly see some changes to the company in the near-term future as it becomes a more significant player in the cybersecurity industry. Four expectations for this company include the following:
1. Initial Public Offering
An IPO is a near certainty for Arctic Wolf, although we don’t know when it will go down that path. We’re amid one of the most extensive tech IPO droughts in history because of rising interest rates and a volatile stock market, leading to some apprehension. There is talk of the company going public by the end of 2023, but that timeline is far from a certainty at this point.
2. High Share Prices
One reason for Arctic Wolf opting for convertible notes is the conversion premium. The gist is that the price at which these notes convert into shares will be higher than the IPO price, signaling confidence that the company’s shares will increase in value after going public. This method also offers investors downside protections, which can attract investor interest.
3. Enter Larger Markets
Midsize enterprises are currently the target market for Arctic Wolf, but there’s a belief the company will begin pitching its products to larger markets in the coming years. This move could raise the firm’s earnings ceiling helping it become a global cybersecurity leader.
4. Become a Top Software-as-a-Service Company
Arctic Wolf aims to become one of the world’s top software-as-a-service companies. The firm believes its one-stop, cloud-native solution will endear it to businesses of all types, allowing it to become a trusted name in the cybersecurity industry. The company’s platforms and tools are what they hope sets it apart from the rest and lead to even more financial growth moving forward.
The progression Arctic Wolf is experiencing is at least partially responsible for the expectations it might have to meet in the future. This situation is worth monitoring for investors as they seek out the next cybersecurity unicorn during its early stages.
Potential for Cybersecurity Investment
The cybersecurity industry isn’t slowing down anytime soon, as new risks arise daily, and startups looking for solutions will continually enter the fray. Investors should be aware of the industry’s needs as they search for opportunities, and keeping an eye on the firms currently experiencing success is a good step in that direction.
Option3 is a cybersecurity financing firm that understands areas where the industry is underserved, allowing us to make strategic investments. The result is more significant growth potential for our investors. Contact Option3 for more information on our cybersecurity private equity portfolio.