By Dan Tynan
Arctic Wolf is now a global leader in mitigating cyber threats for organizations of all sizes – from large enterprises to small businesses, one of a handful of companies driving the Managed Detection and Response (MDR) market. But when the company first launched in 2012, it was more of a lone wolf.
Back then, companies protected their networks and corporate assets via a jumble of complex point solutions: firewalls, anti-malware, intrusion protection, spam filters, email security gateways, network access control systems, VPNs, and so on.
Co-founder Brian NeSmith’s vision for the company – a web service that would aggregate and analyze the data from each of those point solutions, creating a “neighborhood watch for your IT infrastructure” – was so novel the category didn’t even have a name yet.
By the time the category became known as MDR, Arctic Wolf was already well established as a solution for small and mid-market businesses that couldn’t afford to field their own security operation centers.
As CEO, NeSmith himself made thousands of cold calls and wrote the scripts for other sales reps to use. At one point he even adopted an alter ego (“Brian Robinson”), because he feared that getting a sales call from the CEO would send the wrong message to potential customers.
As NeSmith told an interviewer earlier this year, he always started with a five-second script. If the customer didn’t hang up, he’d go for 15 seconds. If they were still on the line, he’d extend to 60 seconds. If they were listening after a minute, he’d ask for a 15-minute meeting. And if they were still on the fence after the meeting, he’d offer a free, one-month, no-obligation trial.
For the first five years of its existence, Arctic Wolf’s growth was steady but unspectacular. The company had yet to gain much traction among large enterprises, most of which continued to maintain their own security operations on premise.
Then the ransomware crisis hit the healthcare industry. Suddenly hackers were more than just a nuisance – they could make an organization’s data infrastructure inaccessible, costing them millions in down time. Almost overnight, NeSmith began getting invited to a lot more meetings with much larger companies.
Between 2016 and 2020, Arctic Wolf’s revenues soared by more than 4,300 percent. For the last four years, the company has been included in Deloitte’s Technology Fast 500. In 2021, it was declared an MDR MarketScape Leader by IDC and added to CRN’s Security 100 list. The next year it was included in CNBC’s Disruptor 50 List, an award it won again in 2022. This year the company was recognized as one of the top 100 private cloud companies by Forbes.
Today, Arctic Wolf is recognized as a global leader in MDR and XDR (extended detection and response), with more than a million licensed users worldwide. In addition to its global HQ in Eden Prairie, Minnesota, the company boasts regional offices in four states and eight countries.
“Our mission as a company is to end cyber risk,” says President and CEO Nick Schneider, who took the reins from NeSmith in August 2021. “By reducing the frequency and impact of incidents, we make our customers less attractive targets, bringing the risk to their environments to essentially zero.”
But without an early investment (and continuing support) from Lightspeed, Arctic Wolf might not be in a position to help anyone.
Lightspeed steps in
In 2012, NeSmith had a revelation: The security market was broken. There were too many point solutions, and no easy way to coordinate between them to identify the root causes of attacks. Along with co-founders Kim Tremblay, Sam McLane, and Matthew Thurston, NeSmith built a platform that collected data from all of these solutions and allowed security personnel to quickly analyze the results. They planned to sell continuous threat monitoring as a subscription service.
The founders had a vision and were building a team. Now they needed funding. So NeSmith turned to Lightspeed, which led a $7.2 million Series A round for Arctic Wolf with Redpoint Ventures. Seven months later, Lightspeed and Redpoint led the company’s $20 million Series B.
In 2018 the company secured an additional $16 million round from Lightspeed, Sonae Investment Management (now Bright Pixel Capital), Redpoint, and Knollwood Investment Advisory. All told, Arctic Wolf has secured six rounds of funding totaling more than $500 million, nearly all of it over the last five years.
As Arctic Wolf grew, Lightspeed continued to invest – a situation that’s relatively uncommon, notes Will Kohler, who heads up Lightspeed’s growth team.
“Not many investment firms have a strategy that enables them to invest in a company’s earliest stages and also be a real capital provider through every stage of its journey,” he says. “And few companies get the opportunity to go on that journey.”
What sets Arctic Wolf apart is its exceptional management team, well-organized go-to-market machine, and multiple opportunities to build relationships with customers via an expanding range of product offerings, he adds.
“Very few companies can execute on the vision of starting with an SMB offering and work their way up, customer segment by customer segment, to become a global service provider,” Kohler says. “Arctic Wolf is one of the rare ones that has.”
Acquire and conquer
Kohler says Lightspeed continues to have a presence on the company’s board and is involved with operational decisions, such as helping the company identify and recruit executive talent, as well as advising on the best paths for future growth.
“As a consistent investor in the cybersecurity space, we can help them understand what we’re seeing on the ground floor of the market,” he adds. “For example, we can identify adjacent areas they should look into, places where they might want to go deeper, and what product categories they may want to own themselves.”
And while Arctic Wolf has never subscribed to the ‘growth at all costs’ philosophy, says Schneider, it has been actively expanding its market footprint via strategic acquisitions. Over the last three years it has acquired RANK Software (analytics and threat hunting), Habitu8 (cybersecurity training), and Tetra Defense (incident response.
Most recently, the company announced its intent to acquire Revelstoke, makers of a leading Security Orchestration, Automation, and Response (SOAR) platform, which should enable better integration of data between disparate systems.
“We’ve always been thoughtful about how to structure and fund the business to maximize its long-term position,” he says. “We’ve spent a lot of time talking with Lightspeed about the investments we want to make, and we’ve been able to strike a pretty good balance between growth and stability.”
From the company’s earliest days, Schneider adds, Lightspeed has been a trusted partner and advisor.
“We’ve gone through quite a few fundraising rounds, market changes, and socioeconomic events over the last 11 years,” he says. “Through it all, Lightspeed has been extremely helpful in offering resources and expertise. It’s never felt like anything other than a true partnership.”
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