RedOwl, a Baltimore-based cybersecurity analytics startup, has been acquired by a Raytheon-owned firm in a deal that investors and business leaders say proves the region's value as fertile ground for growing companies that can compete with the likes of Silicon Valley.
Under the deal, RedOwl's technology and staff of about 60 are being absorbed by Forcepoint, a company based in Austin, Texas, that specializes in content security and data protection.
Financial terms of the deal were not disclosed.
RedOwl CEO Guy Filippelli said the acquisition allows the company to bolster its offerings to customers and grow at a faster pace.
Forcepoint plans to retain RedOwl's Federal Hill office as a "center of excellence" in analytics and even expand operations there, thus bringing a company to Baltimore with about $566 million in revenue backed by one of the nation's biggest defense contractors.
"It's really important that we prove there is a successful life cycle to companies that are incubated and invested in here," said Filippelli, who will be a vice president at Forcepoint. "This kind of outcome, from my perspective, proves to investors that we can build enterprise software companies and that we can lead them to successful exits."
Acquisitions are a sign of success for a startup but can drain local talent if the new parent company folds operations into their existing offices.
Don Fry, CEO of the Greater Baltimore Committee, said RedOwl's story is an example of how a startup can continue to thrive in Baltimore after an acquisition, while drawing in new businesses.
"The fact is you've got a major company like Raytheon that has recognized the talent and the cutting-edge technology that exists in that company," Fry said. "I think that may be a signal to others to start recognizing the type of talent we have here in Baltimore."
Founded in 2011, RedOwl uses data analytics to detect unusual activity and enhance security on customers'[ systems. Most of the company's 60 employees are based in Baltimore, though RedOwl also has a small team in New York City.
The idea for RedOwl came from Filippelli's service as an Army intelligence officer following the Sept. 11 attacks, when he ran software development teams that helped the military and National Security Agency sift through information gathered in war zones for potential threats. RedOwl was created as a way for commercial companies to similarly sift through data to detect threats.
RedOwl has raised at least $21 million in venture capital from investors including Under Armour CEO Kevin Plank, Salesforce CEO Marc Benioff and Blackstone, a leading multi-national investment firm.
Baltimore-based TCP Venture Capital invested in RedOwl on behalf of the Propel Baltimore Fund, a venture fund backed by the Abell Foundation and the France-Merrick Foundation that TCP manages.
Christopher College, a managing partner at TCP, said RedOwl's smart solution to an increasingly pressing cyber challenge — insider threats — was only half of what attracted the firm as an investor.
"First and foremost, Guy Filippelli and the management team are some of the most impressive managers you'll ever meet," Cross said. "As an investment thesis we will always invest in A-level managers. We wouldn't invest in a B-level manager even if they had an A-level idea."
Forcepoint also was attracted to RedOwl's talent in addition to its technology, which is why the company plans to continue growing its Baltimore office, said Heath Thompson, a senior vice president with Forcepoint.
Baltimore's proximity to universities turning out potential employees and Forcepoint's existing client base in Washington, D.C., added to the company's appeal, Thompson said.
"Every city is making its own play for high-tech startups," he said. "The thing about Baltimore is it's a little bit of untilled soil, to a certain degree."
Forcepoint specializes in surveying customers' systems and using the data it collects to create safeguards against the release of potentially sensitive information.
Previously known as Raytheon|Websense, Forcepoint is majority-owned by Raytheon, along with the private investment firm Vista Equity Partners. The company has at least 2,600 employees around the world.
Combining the two company's strengths and products "creates a system capable of protecting critical business data and [intellectual property] like no other," Thompson said.
Deals like RedOwl's are crucial to strengthening the region's cyber security ecosystem, said Parag Sheth, director of the Maryland Venture Fund, a state-backed investment fund that was an early RedOwl supporter.
"Those successes are how the next companies start," he said. "We need that ecosystem to continue to flourish."
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But cyber CEOs and investors were especially excited by RedOwl's acquisition because it will bring a bigger player in cyber to Baltimore.
"There's a saying in venture capital that good money follows good money," said James C. Foster, CEO of ZeroFox, another fast-growing Baltimore cyber firm that recently raised $40 million.
RedOwl is Forcepoint's third acquisition, and company officials say it won't be the firm's last.
While future deals may not be in Maryland, the company's presence in Baltimore could signal to other firms and venture capitalists that they, too, should take a closer look at Baltimore.
"What I really hope is that this trend continues for the other great, young companies here in the area," Filippelli said. "And we continue to recognize the importance of attracting companies like Forcepoint to use acquisitions as an opportunity to set up shop here in Baltimore."