The resurgence of security IPOs

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After the economic crash in 2008, the public market has slowly begun to improve, and what seemed like an utter drying up of capital is now beginning to dampen. While Facebook's initial public offering (IPO) was a bit of a black eye for the technology industry, the security software market could be making up for it.

LifeLock, Qualys, Proofpoint, Splunk and Palo Alto Networks are a handful of prominent security firms that have gone public this year – and have seen success. 

According to Thomson Reuters, 60 percent of the venture-backed IPOs issued in the third quarter of this year are IT related. Of that bunch, the largest IPO of the quarter came from Santa Clara, Calif.-based firewall vendor Palo Alto Networks. After releasing its IPO shares on July 19, it saw a 27 percent increase by day's end. As of Oct. 10, the stock is up 47 percent from its IPO.

Qualys, a Redwood, Calif.-based cloud security company, saw similar success when it released its IPO on the Nasdaq stock exchange in September, debuting its offering at $12 a share and closing the day with an 18.5 percent gain. Prices have increased 13 percent from its IPO as of Oct. 10.

The number of software security IPOs is indicative of the high demand for innovative technology, said Gary Steele, CEO at Proofpoint, a Sunnyvale, Calif.-based company that offers cloud-based security solutions and went public in April. However, Steele said, while there are some perks in having access to additional capital, there are attendent risks involved with going public.

“You have to believe that you can sustain your business over a long period of time, and, if you don't believe that, the risks are very high,” he said.

The trend of industry giants, like Symantec and McAfee, buying up the smaller specialized companies seems to be deviating, said Dov Yoran, CEO at ThreatGRID, a New York-based strategy and business advisory firm in the information security market. Though acquisitions are still prevalent, he believes that the innovation from smaller software security companies are upping their price tags. That may not be as attractive to security titans deciding whether to make the move and snatch them up.

“Maybe it's a trend that's going to evolve and we're going to see more companies heat up with the security market in general and we'll see more that are going to take the option of going public rather than getting acquired,” Yoran said.

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