ALPHARETTA, GA. – Network security software developer Lancope has landed its first – and possibly only – venture capital round to build on an already fast-growing business.

H.I.G. Capital of Miami and GMG Capital Partners of New York provided Lancope with $5.55 million, which will be used to expand the company’s engineering and sales efforts, says spokesman Bill Sengstacken.

Lancope produces “StealthWatch”, a configurable software tool that it installs on Dell servers to monitor sensitive networks for external hacking activity or internal misuse and ships to customers. Rather than scan for the “signature” of known types of network attacks, Sengstacken says the software checks for unusual activity that could signal an attack, such as someone from a client’s engineering department accessing accounting records after hours.

“We actually look for bizarre behavior on the network, anomalies in the data flow,” he says, comparing the system to a bank security guard. “If all he’s got is a stack of photos of known bank robbers, he can stop them, but he can’t handle a first-time robber. We give him a way to check behaviors that are out of the ordinary and may warrant investigation.”

StealthWatch, which is one of three finalists for an Innovations in Infrastructure award, that will be presented in Las Vegas next month by eWeek and PC Magazine, can be customized according to a customer’s needs to search for specific activity or ignore other actions, he says.

Benefiting from security concerns

Lancope is targeting the financial services and health care industries, government agencies and heavily trafficked websites. Customers include CNN, Carnival Cruise Lines, Scientific Atlanta and weather.com.

The venture funding will allow Lancope to add to its engineering staff so it can load StealthWatch into more servers quickly – it now has just two people doing that full time – and put more muscle into its marketing efforts. So far, the company’s best marketing tool has been to ride the recent wave of interest in security issues.

“I don’t want to tout Osama bin Laden as a member of our marketing team, but his actions certainly have shaken up people’s priority lists,” Sengstacken says. “A year ago, all people talked about was wireless. … Now people just want to know how much security is enough to protect their data.”

Lancope has 28 employees, most at its headquarters near Atlanta with a few in sales offices in New York and San Francisco. Sengstacken expects the headcount to be up to 40 within three to six months, and sales offices may be opened in Chicago and Dallas.

Enviable financial position

Founded two years ago by Georgia Tech engineering professor John Copeland, the company already is cash flow positive and has a valuation of $10.55 million, Sengstacken says. He declines to provide other financial information.

Lancope received $1.5 million in seed money from an angel investor last year, and H.I.G. and GMG Capital had negotiated several bridge loans in recent months until terms of the current round could be worked out, he says. The bridge loans accounted for part of the $5.5 million.

“Our financial position allowed us to take our time to negotiate a term sheet that was much more favorable than if we were desperate for the money,” he says. “With our financial position, I don’t see us needing another (venture) round.”

Despite its cash flow, he says the company chose the venture route over bank financing to be able to expand more rapidly and achieve the scale needed for a possible future stock offering or sale in a much shorter period.

Lancope web site: www.lancope.com