peshkova - stock.adobe.com
SCVX Corp. is looking to make acquisitions in the cybersecurity industry, and it's taking a different route to reach that goal.
Washington, D.C.-based investment firm Strategic Cyber Ventures this week launched the IPO of SCVX, which raised $230 million Wednesday. The new company entered the New York Stock Exchange as a special purpose acquisition company (SPAC), which is a blind pool of capital raised through an IPO with the purpose of acquiring an asset.
Hank Thomas, CTO of SCVX and co-founder of Strategic Cyber Ventures, said an SPAC acquisition is different that a traditional acquisition by a private equity firm or another cybersecurity vendor. "When we buy this company or it reverse merges into our SPAC, it's instantly public. The stock ticker changes from SCVX to whatever that company is named," Thomas told SearchSecurity.
While SPACs have been launched before in other vertical industries, SCVX is billing itself as the first cybersecurity-focused SPAC. The company is targeting cybersecurity vendors with enterprise valuations in the range of $600 million to $1.5 billion.
Mike Doniger, CEO and chairman of SCVX, said an SPAC provides a better option for a growing cybersecurity vendor looking for financing. "Private equity for high growth companies is traditionally not the route because they don't like a lot of leverage," he said. "Venture capital works well along the path in Series A, Series B, Series C and even Series D [funding], but as you get into the billion-dollar range… venture capital doesn't tend to want to deploy that level of valuation."
Doniger said if larger companies with higher valuations want access to capital, they have to go public. And while the usual approach is for a company to launch its own IPO, an SPAC provides a different approach that gives the company faster access to capital.
Now that SCVX is public, Thomas said the next step is finding the right "cornerstone" company to acquire, which should fall in between a startup and a giant legacy vendor. "Our target company would be one of the ones that's reached critical mass because of its next-generation technology and has a footprint in Fortune 1000 but isn't the biggest company in the world," he said.
Thomas said the targeted company should have a "next-generation" cyber defense platform that has artificial intelligence or machine learning technology. "Artificial intelligence is finally intelligent enough, that we think we can find a platform based on AI/machine learning that searches for anomalous behavior and is scalable as opposed to a whitelisting-based security technology."
Once the target company is acquired by SCVX, Thomas said the strategy will be to acquire additional vendors with the right "ingredients" to build out a larger portfolio of cybersecurity offerings under one roof.
"The combination of ingredients could be an artificial intelligence machine learning-based cyber defense platform with a threat intelligence company bolted on to it, a third-party vendor risk management bolted on and an identity and access management company bolted onto it," he said. "Those ingredients would be the right the ones."
Along with Doniger and Thomas, SCVX's board of directors includes Dan Coats, former Director of National Intelligence; Jeff Lunglhofer, CISO at Bank of New York Mellon; Vivian Schneck-Last, former managing director at Goldman Sachs; and Sounil Yu, former chief security scientist at Bank of America.