Editor’s note: Local Tech Wire’s first Top 25 Companies list focuses on the emerging companies presenting at the CED’s Venture 2002 event April 30-May 1.CipherOptics, a startup operating largely in stealth mode since launching in 2000, will have several coming out parties over the next month.

Even as management prepares for Venture 2002 where they will be seeking $5 million, they will unveil their high-speed Internet and network security products at InterOp in Las Vegas next week. And CipherOptics will be on the trade show floor at VPNcom in May.

True to its name, CipherOptics is all about network security and doing so at high speed. And their sights are set high.

“CipherOptics is determined to change the face of high-speed networks in the 21st Century by shattering security/performance barriers,” reads the company’s mission statement. “The corporate vision is to architect and deliver best-in-breed multi-Gigabit speed network security offerings to encrypt everything all the time. Our focus is both on the business drivers for our technology and on our ability to serve those markets today in the future.”

Demands for network security are ever increasing these days in view of identity theft, hacking and terrorism. But encrypting data can slow networks and servers because of the additional information loaded in and around the digital packets. CipherOptics, co-founded by two executives with long tenures in technology and an expertise in encryption, believe the magic of their product not only protects data but also does so at fast speed.

CipherOptics’ first product is described as a “security appliance” that supports the key network security standards, SSL and IPSec. The company, which already has raised $3 million, estimates sales will be $10 million the remainder of this year.

And there is a growing product for these kinds of services. A recent IDC report says sales of Internet security software soared 18 percent to $6 billion in 2001. The market should hit $14.6 billion by 2006, IDC says.

Michael Doss, CipherOptics’ president, and Dennis Toothman, chief technology officer and vice president of engineering, co-founded the company in 2000. Doss spent his last two years as an executive for marketing and strategic development at Siemens working on high-performance Internet security. And Toothman helped bring to market a high-speed encryption product for Celotek before that company was acquired in 2000. Doss has been involved in technology for more than 30 years, Toothman for 25 years.

Ann Gilliam, vice president of business development, fills out the senior management team. And she, too, knows security, having worked for such firms as Verisign, Digital Signature Trust, Equifax Secure and RSA.

Q&A with CipherOptics:

Answers provided by Ann Gilliam, vice president of business development.

Times are tough. If you had only one chance and one paragraph to convince an investor, how would you answer this question: “Why should an investor choose your company?”

Domination – CipherOptics will dominate network encryption which translates into a tremendous market opportunity. Our vision is that all data should and can be encrypted but historically limitations have rested primarily with price vs. performance issues. CipherOptics provides new network security solutions that enable customers to now secure all their data without compromising network throughput.

What makes your company unique? Do you have a proprietary and/or a patented technology? Please explain why it is unique and what the status is of any patent filings.

CipherOptics is the only company that has architected and delivered true wire-line multi-gigabit speed security solutions for both IPSec and SSL offload using the strongest encryption algorithms available at a price point approximately one tenth of the cost of current offerings. There are multiple patents pending.

What makes your product(s) and/or services unique vs. your competition? (Who is your competition, and what do they offer?) If you have no competition, why not?

CipherOptics has ten times the price performance of any other encryption appliance offering on the market today.

Does your company already generate revenue? If so, how much? Are you cash flow positive?

CipherOptics will begin shipping product this month.

What is your target market? What is the size of that market in terms of dollars? What share of that market do you believe you can win?

CipherOptics is poised to target the following markets: high performance SSL offload and Enterprise IPSec, including the nascent Storage Area Network (SAN) market. These markets project a multi-billion dollar opportunity.

We believe that we can capture the significant majority of the high-performance network security marketplace.

What will you do with the invested funds? What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

We will use the invested funds to add sales & marketing, marketing support programs for our OEM partners, and continued product R&D. We will ship product to our first OEM customer this month.

We intend to maintain our price/performance leadership through the delivery of increasingly competitive high-speed encryption offerings.

What do you want from an investor other than money?

Raising capital is important. However, equally important are investor relationships that can be used to help us develop associations with financial analysts, potential OEM customers and future investment partners.

Why will investors be impressed with your management team?

The management team — Mike Doss, Dennis Toothman and Ann Gilliam — have extensive domain expertise in network security. In addition, their combined 70 years managerial experience includes creating successful product and company strategies, structuring and negotiating key business relationships, and leading large and diverse teams to bring new high technology products to market.

What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

CipherOptics is progressing toward an Initial Public Offering.

What do you want to see in a term sheet? What would you consider “fair”?

Capitalization and valuation in order to achieve success.

CIPHEROPTICS FACT BOX:

TYPE OF COMPANY: Network Security (Data Encryption)

ADDRESS: 1401 Sunday Drive, Suite 103; Raleigh, NC 27607

PHONE NUMBER: (919) 865-7330

WEB SITE: www.cipheroptics.com

MANAGEMENT TEAM MEMBERS:

Mike Doss, CEO and President
Dennis Toothman, Chief Technology Officer and Vice President of Engineering
Ann Gilliam, Vice President Business Development

BOARD MEMBERS:

Ilan Carmi, Kodiak Venture Partners
Mike Doss
Dennis Toothman

INVESTORS:

Kodiak Venture Partners, 35 Forest Ridge Road, Concord, Massachusetts

COMPANY MISSION STATEMENT:

CipherOptics is determined to change the face of high-speed networks in the 21st Century by shattering security/performance barriers. The corporate vision is to architect and deliver best-in-breed, multi-Gigabit speed network security offerings to encrypt everything all the time. Our focus is both on the business drivers for our technology and on our ability to serve these markets today and in the future.

REVENUES: Projected $10 Million (2002)

YEAR ESTABLISHED: 2000

NUMBER OF EMPLOYEES: 30