Arctic Wolf Raises $150M On $4.3B Valuation To Fuel Tech M&A

Arctic Wolf wants to grow its presence in the orchestration, remediation, deception, and cloud security spaces by making between five and ten acquisitions over the next year, CEO Brian NeSmith tells CRN.

Arctic Wolf has closed a $150 million Series F financing round to expand its portfolio of services through a series of tuck-in technology acquisitions.

The Eden Prairie, Minn.-based security operations vendor wants to grow its presence in the orchestration, remediation, deception, and cloud security spaces by making between five and 10 acquisitions over the next year, according to CEO Brian NeSmith. Arctic Wolf achieved a $4.3 billion valuation with Tuesday’s funding round, meaning the company’s market cap has more than tripled over just nine months.

“I think the world is recognizing the threat of cyber,” NeSmith told CRN. “The investment community sees Arctic Wolf as the next big thing in security.”

[Related: Arctic Wolf Eyes Additional Funding At Valuation Above $4B: Report]

Expanding beyond the company’s flagship managed detection and response (MDR) technology to offer managed risk, managed cloud operations, and managed security awareness gives Arctic Wolf’s channel partners more ways to sell and generate incremental revenue, NeSmith said. Eighty percent of Arctic Wolf’s customers have adopted managed cloud operations, and 70 percent have adopted managed risk.

In fact, NeSmith said that more than half of Arctic Wolf’s customers have at least three of the company’s modules in their environment. “We have had a lot of success cross-selling across the platform,” NeSmith said. Arctic Wolf’s four module-managed security awareness – debuted during the 2021 RSA Conference in May.

From a partner perspective, NeSmith said Arctic Wolf is looking to expand its channel presence with enterprise customers and beyond North America. Arctic Wolf historically worked only with customers with less than 3,000 users until a year ago, at which point the company expanded upmarket into the enterprise space and began taking on clients with between 3,000 and 50,000 users.

Arctic Wolf’s enterprise business is growing four times faster than the company as a whole, as large organizations face the complex task of defending against a significant greater number of attack vectors, NeSmith said. The company sells exclusively through the channel, according to NeSmith.

Customers with less than 300 employees are touched only by the MSP partner, while customers with greater than 300 employees interact with personnel from both Arctic Wolf as well as the MSP partner, NeSmith said. Arctic Wolf plans to invest some of the $150 million in orchestration and collaboration tools that’ll make it easier for the company and its MSP partners to jointly deliver work together.

Arctic Wolf has doubled its topline revenue for each of the past seven years, and NeSmith said the company is on track to continue doing so for the foreseeable future. Barring a large acquisition, NeSmith doesn’t anticipate Arctic Wolf needed to raise more money anytime soon. Arctic Wolf has raised nearly $500 million in seven rounds of outside funding since being founded nine years ago, according to Crunchbase.

NeSmith wants to enhance Arctic Wolf’s reporting, tracking and prediction systems and capabilities before taking the company public, starting with an enhancement to the company’s financial systems this quarter. Arctic Wolf’s financial performance is robust enough for the company to be public today, but NeSmith said the capital markets gave the company a way to get more money at an attractive valuation.

“We’re clearly on the path to going public,” NeSmith said. “We know we eventually will be a public company, and so we’re investing in the infrastructure and capabilities to do that effectively.”

Nth Generation has been selling Arctic Wolf’s MDR and managed risk offerings for the past 18 months, and the company has quickly become one of Nth Generation’s fastest-growing vendors, according to Dan Molina, CTO of the San Diego-based company, No. 294 on the 2021 CRN Solution Provider 500. Arctic Wolf’s channel team members truly care for partners and respond quickly when issues arise.

Molina would like to see Arctic Wolf use some of the Series E proceeds to enhance its new managed security awareness offering with more tailored personas based on an individual’s role within the organization. Arctic Wolf should also continue investing in its artificial intelligence and machine learning systems to increase its intelligence and accuracy as it matures and ingests more data, Moline said.

“Our growth with Arctic Wolf has been pretty impressive,” Molina said. “They offer the essential ingredients for a successful partnership in this industry.”