Earlier this week VMware
announced it would acquire Octarine
, a Kubernetes security startup, for an undisclosed amount. Octarine will be folded into Carbon Black
, the security company VMware purchased last year for $2.1 billion. As SDx Central reports, “VMware plans to integrate Octarine with vSphere, NSX, VMware Cloud Foundation, and its newer Kubernetes-focused Tanzu platform. It will run alongside service mesh frameworks such as Tanzu Service Mesh to provide native anomaly detection and threat monitoring for cloud and container-based workloads.”
The York IE team
made this acquisition our Transaction of the Week (TOW) for two reasons. First, as an investor in cybersecurity companies, this is a great data point. Octarine was founded in 2017 and had reportedly raised $9 million from outside investors. While we don’t know what VMware is paying for Octarine, or the startup’s most recent post-money valuation for that matter, it does show that large players are still acquiring early stage startups which generally have minimal GTM traction and expenses.
This fits our internal thesis at York IE, that the cybersecurity market
is consolidating around platforms, and these platforms will use M&A to acquire point solutions outside of their expertise. These point solutions will not necessarily come with large amounts of customers or revenue, but the technology and team they bring to the table will be very valuable to an acquirer looking to fill out a platform. As an early stage investor we like to see a company with a profile like Octarine being acquired over the dozens of cybersecurity companies that have raised 10s of millions of dollars in funding at valuations that will struggle to be justified by the market opportunity for a point solution.
Our other reason for making this our Transaction of the Week is to put a spotlight on VMware’s corporate strategy. VMware was a pioneer in virtualization and has long been a staple of on-premises IT infrastructures. However, as the cloud trend emerged, and more and more companies started to shift their infrastructure to the hyperscale providers (AWS, Azure, GCP), VMware’s business could have been decimated. Under the leadership of CEO, Pat Geslinger, the company adapted its strategy to the changing climate and found its role in the market by adding lines of business and innovation via acquisition, partnering with the hyperscale cloud providers, and doubling down on the workloads that will never leave on-premises infrastructure.
Cybersecurity and DevOps tooling were two of the new lines of business, and the acquisition of Octarine fits nicely with both. Kubernetes is the primary system used for deploying and managing containerized applications, which have unique security vulnerabilities. By integrating Octarine into their security and DevOps suite of tools, VMware is better positioned to help their customers secure cloud native workloads, further adapting to the shift to cloud.