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Venture Capital

ForeScout Raises Funding at a $1 Billion Valuation, Holds Off IPO

The cybersecurity company will wait on going public amid the recent market volatility.

ForeScout Technologies Inc. raised $76 million from Wellington Management Group LLP and other investors as it continues to prep for an initial public offering. The latest round of financing values the company at $1 billion.

Theresia Gouw, a ForeScout board member, said fundraising was more difficult because once-active financiers had begun to pull back on late-stage tech investments. "It was pencils down for a lot of them. They were taking a pause," said Gouw, who contributed more money to this round through her firm Aspect Ventures.

Gouw, along with ForeScout Chief Executive Officer Michael DeCesare, said the company could have raised at a higher valuation. However, ForeScout decided not to so it could ensure friendlier terms and enough room to increase its valuation when the company goes public, they said. "We don't want to be one of those companies that raises at a valuation now that's eye-popping on the private market and then have to go public at half the price," Gouw said.

Technology companies are starting to take a more cautious approach compared with the go-go funding mantra of the past several years, when startups raised as much capital as they could at the highest valuations possible. "I don't think we're where we were during the Internet bubble, but you do have people preaching caution," said Jeff Grabow, who heads the U.S. venture capital practice at Ernst & Young.

DeCesare said he chose Wellington to lead the round because they're in it for the long term and offered a "vanilla" term sheet, without provisions that could decrease the value of shares held by employees and early investors. Wellington declined to comment. DeCesare said ForeScout is close to getting a commitment from an additional investor, which would bring the round's total to $80 million or so.

Founded by three Israeli entrepreneurs in 2000, ForeScout said it generated $125 million in revenue last year. DeCesare had previously said he expected 2015 bookings to reach $150 million. The company said it's close to being cash-flow neutral. ForeScout's technology allows companies to monitor devices on their network without requiring special software to be installed on each one.

ForeScout's IPO plan had expected to ride the wave of successful cybersecurity stocks, such as Israel's Check Point Software Technologies Ltd. But that usually reliable stock has tumbled 13 percent in the past month. DeCesare said his investors are wary of going public amid the recent volatility. "Now it's all about watching the market and timing it," he said.

(ForeScout corrected a statement from 2015 to show company meant to forecast bookings, not revenue. This story published Jan. 21 has been corrected to show ForeScout didn't miss a revenue forecast.)
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