The 1M1M Deal Radar 2010: Gigamon , Milpitas, California

Following on Friday’s coverage of network forensics with Solera Networks, today’s post profiles Gigamon, which develops data access solutions to enhance network monitoring of data centers, service provider, and enterprises.

The Milpitas, California-based company was founded in 2004 by several veterans of the network management and monitoring industry: Ted Ho, CEO, a 20-year veteran who came from Network Associates, Patrick Leong, CTO, King Won, VP of Products and Services, and Thomas Cheung, VP of Engineering.

When Gigamon was founded, there was no market or competition. The IT industry had changed dramatically owing to two incidents: September 11 and Enron. These events impacted how information technology was supposed to operate, focusing on the need for network security and compliance. In order to address this need, a common problem first had to be solved: how to access data at the core of the network. If clients can’t access data, they cannot know if it is secure and compliant. Various vendors provided the tools to analyze the network traffic but forgot about the fundamental question – how to access data from switches/routers and forward that data to the tools. GigaVUE is designed to provide that bridge, closing the gap between the core network and the tool doing the monitoring, analyzing, or recording. GigaVUE enables full utilization of the network appliance.

GigaVUE, the main product, is a data access switch that is available in several models for networks of varying sizes. It aggregates, replicates, filters, and divides traffic flows across multiple Ethernet-based passive monitoring tools. Its filter packets can help to relieve oversubscribe monitoring tools, increase network visibility, and filter and divide loads, among other functions.

Ho estimates the market size at several hundred million dollars. It’s not yet a $1 billion market, but the growth rate is high. Ho views the market using a top-down and bottom-up view. Since GigaVUE bridges the gap between tools used by service providers and enterprises in every industry, this product is targeted at multiple markets. Since many markets use Gigamon’s products, it’s difficult to measure the specific market(s) directly. Instead, from a top-down view, Ho considers the market size of adjacent markets, such as network monitoring , network security, IPS, IDS, application acceleration, and so forth, that can use Gigamon’s technology. He then considers the percentage from each of those market vendors when they need Gigamon at the front end – for example, will they be 5% or 50% of sales?

It was initially difficult to get customers, but the company persevered and early adopters began to try the solution. A couple years down the road, Gigamon’s go-to-market strategy relied heavily on channel partners and revenue grew substantially. Referrals from current customers are becoming a significant source of sales leads, since IT department employees can move from company to company.

Gigamon’s customers are primarily Global 2,000 companies. However, in the past two years, the paradigm has changed, and the company now has many Fortune 500 customers and about 160 Fortune 1,000 customers that have come to Gigamon through channel partner sources, word-of-mouth referrals, or trade show attendance and other lead generation programs. Gigamon also participates in roundtable discussions with key decision makers to discuss what they’re looking for. Gigamon currently has about 600 worldwide customers across all industries (financial, manufacturing, education, insurance, entertainment, the federal government, etc.). About 75%–80% of customers who evaluate Gigamon’s products send a purchase order within three to six months.

Gigamon is researching OEM business models. In addition, it works closely with tool vendors – companies such as Imperva, Websense, NetScout, Network Instruments, and Compuware – that develop the software and hardware that monitors, analyzes and records data.

The company  no longer has the market to itself and is facing increased competition, especially from Anue Systems. Each company focuses on different users – Gigamon on those who need in-depth configuration and need to automate network monitoring, and Anue on those who “don’t need an entire monitoring fabric” – but this could change. Bruce Boardman of InformationWeek discusses the situation in depth.

In early 2004, the founders spent four months trying to raise funding through venture capital but found it difficult to secure funding for a hardware company, especially one in a new market that was just starting to grow. Therefore, the founders relied on their own funding. In 2005, the founders had an angel investor help launch the company and product, then relied on sales revenue to grow the company. In February 2010, Gigamon secured a $22.8 million Series A funding from Highland Capital, a well-known venture capital firm.

During the recession, Gigamon grew 57% year-over-year. The company is profitable and is on track to generate revenues of about $50 million in 2010. The Series A funds are primarily aimed at continuing aggressive company and market share growth. The company is not looking for additional funding at present, but this could change if it decides to pursue an IPO. The ideal investor is a Tier 1 investor who understands Gigamon’s technology and vision, is experienced at data networking, helps set up the ecosystem and the company’s strategic direction, but is hands-off and lets Gigamon continue to operate business as usual, and helps.

Gigamon’s exit strategy mirrors that of most other private, VC-funded start-ups: acquisition or IPO. As of today, both strategies are possible and both will continue to be pursued. No clear exit is visible, but continued growth can make the exit much clearer in the next eighteen to twenty-four months.

Recommended Reading
Deal Radar 2009: Alert Logic
Putting China On The Silicon Valley Map: NetScreen And Fortinet Founder Ken Xie

This segment is a part in the series : The 1M1M Deal Radar 2010