Cybersecurity firms among top recipients of venture funding in Maryland

Maryland companies raised $64 million in venture capital funding this spring, with some of the biggest payouts flowing to Baltimore cybersecurity startups.

That's according to the latest MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association. The report, which uses Thomson Reuters data, tracks money flowing to startups and later-stage firms across the country.


Maryland firms raised far less in April through June than their unusually large haul a year earlier, when big-ticket deals lifted the state's tally to $320 million. But the number of firms winning funding grew: 21 compared with 14 a year earlier.

The top two funding deals in the Baltimore area flowed to ZeroFOX and RedOwl Analytics, cybersecurity companies that share a building in addition to an industry. They're both located on Light Street in South Baltimore.


ZeroFOX, a 50-person firm that helps companies manage cyberattack risks created by social media, said it raised $10.7 million during the second quarter.

"We only know one speed here, and that's 'faster,'" said James C. Foster, CEO of ZeroFOX, which launched a year and a half ago with just two people. "We're going to grow every aspect of our business as quickly as possible."

RedOwl, which employs 28, raised $4.6 million during the second quarter. That brings to $11 million its venture funding tally since launching in 2012.

The firm helps companies look for red flags — like potential insider trading or financial fraud — in massive amounts of email, texts and other data. Guy Filippelli, CEO of RedOwl, said his 2-year-old company's newest funding round "just gives us the ticket to get in the game."

"What's really important in doing entrepreneurial things is to know when to get excited, to know when to celebrate," he said. "We're not there yet. We couldn't be happier about our progress, couldn't be happier about the team, the software — everything is going very, very well — but we are still very early in the plan."

Maryland ranked 19th in the country for the amount of venture-capital funding its companies landed during the spring, substantially lower than the state's fourth-place showing a year ago, according to the MoneyTree report.

The state's strong performance last year was driven by three large deals. In spring 2013, two Maryland biotech companies won $236 million combined, and video ad firm Videology, then based in Baltimore, drew $60 million in funding, according to MoneyTree. Videology has since relocated its headquarters to New York City but still has a substantial operation in Locust Point.

Venture funding, meanwhile, is on the rise nationwide. April through June was the biggest quarter for U.S. venture capital since the beginning of 2001, on the downward slide of the dot-com bubble.


But Maryland ranked ninth for its sheer number of deals this spring, a 50 percent jump over the same period a year earlier.

"We had a very, very busy second quarter this year," said Tom Dann, managing director of the Maryland Venture Fund, a $100 million state-funded effort that focuses on early-stage companies. "We're seeing a lot of activity."

More than half the Maryland firms that won funding during the spring are headquartered in the Baltimore area. Among them are Baltimore vaccine company Profectus BioSciences; DDMotion, an Owings Mills company that makes motion controls; and bambeco, a Baltimore-based online retailer that focuses on environmentally sustainable home furnishings and decor.

Cybersecurity firm SurfWatch Labs landed $3.5 million — the third-highest amount in the Baltimore area. But it quickly relocated its headquarters from a post office box in Glenelg to actual office space in Northern Virginia.

Jason Polancich, SurfWatch Labs' founder, said the bulk of the company's engineering team still lives and works in Maryland. It's just that the 25-employee company's newly hired executive team lives in and around Virginia, so it made sense to put the corporate headquarters there, he said.

The company focuses on "cyber risk intelligence," collecting data on cyberattacks to help businesses plan accordingly. Polancich, a former National Security Agency and Central Intelligence Agency analyst, likens it to a cyber weather service.


"People are really finally waking up and saying, 'Hey, this affects me — this affect us all every day,' " he said.

California is the 800-pound gorilla in venture funding, thanks to Silicon Valley's base of startups and venture firms. Companies in that state drew nearly $8 billion in venture capital during the spring, more than every other state put together, according to MoneyTree.

That presses some entrepreneurs to put their startups in Silicon Valley. ZeroFOX's Foster decided to just make fundraising pitches there and leave the headquarters in Baltimore.

"Ironically, we ended up using three East Coast firms," said Foster, whose company raised money from Comcast Ventures, Core Capital Partners, New Enterprise Associates and others, including individual investors.