Growth accelerates for Twin Cities cybersecurity businesses

Many cybersecurity firms hit the brakes quickly and laid off workers when the pandemic hit last year, throwing the country into recession.

Their revenue was disrupted as corporate and government customers put off spending decisions and adjusted to new ways of work, with most employees logged in from home.

But the work-from-home model just as quickly presented them new opportunities, and many were staffing up by summer to stay ahead of demand.

"Our business ended up growing and we did great," said CEO Aaron Shilts of Minneapolis-based NetSPI. "Some of our smaller customers slowed. But our Fortune 1000 [clients] never stopped growing.

"In some ways it accelerated our business," he added. "We used to have wait a month for a sales meeting. Now everybody can jump on a telemeeting. I do worry about long-term effects on collaboration. Humans need to work together to maximize the results."

NetSPI, an enterprise-security tester and system-vulnerability manager, said it grew sales 35% for a fourth year in a row and is approaching revenue of $50 million. Its employs more than 200 workers around the country and expects to add up to 50 more this year.

The firm works with large banks and several units of the Department of Defense. Like its clients, NetSPI had to adjust to remote work.

"Internally, we try to over-communicate and stay in touch," Shilts said. "People do lose energy when they're just on Zoom. Most would like to be in the office some. But they mostly got the job done from home. I think the future is probably more flexibility."

As vaccinations proliferate and the pandemic likely abates this year, the work-from-home trend is likely to reverse. PwC, the consulting firm, said its December survey of 133 executives and 1,200-plus office workers operating remotely, found that few want to permanently abandon the office and most companies are anticipating more hybrid office-home accommodations for workers.

"This model embraces the flexibility that most employees crave after working from home for months," PwC said in its report. And that means continued brisk business for IT providers.

The four software-security firms contacted for this column are owned by deep-pocket private equity firms that also have backed acquisitions to spur growth of their portfolio companies.

Eden Prairie-based HelpSystems grew 37% in 2020 to $350 million in revenue as global employment rose 25% to 1,100, powered in part by six acquisitions.

"Two major trends have driven interest in security software," said Mike Devine, a Help vice president. "With working from home, an organization's IT perimeter is completely different than it was one year ago so we're seeing a lot of interest to better secure this new world. And companies are required to share more information with employees, customers, and business partners than before. That can be risky if not done right."

At fast-growing Eden Prairie-based Arctic Wolf, which focuses on external cyberthreats to business clients, the company is growing employment from 200 last year to about 350 by 2022. The company, which also operates from Silicon Valley, has doubled its unspecified revenue annually in recent years.

Things just came together differently last year.

"We were set up for a quite a bit of virtual work before [the pandemic] so it wasn't monumental change," said Nick Schneider, the company's president. "But the vast amount of Eden Prairie folks come to the office. They were gone.

"Secondly, we had to ensure our customers had the products and services that leaned more toward virtual than office environments. We worked double-time during the first half of the year. We started earlier and worked late. But we saved a lot of time. No more commuting and airports. In the end, it kind of washed out. Overall, for the our business, the year was … well above good. We delivered for customers."

Arctic Wolf last year raised $260 million in new capital funding. Its latest round indicated a market value of $1.3 billion for the several-year-old firm that also has aspirations to eventually go public.

At software-security firm Code42, which is growing with a focus on internal-security threats from employee electronic-client theft or inadvertent lapses, 2020 turned out better than expected last spring.

"But it didn't feel like that," CEO Joe Payne said recently. "It's been challenging. We feel fortunate."

Code42, heading toward $150 million in revenue, is also on track for a public-stock offering within a couple of years. Employees also had to learn to work from home, as Code42 moved quickly to protect customers whose employees also were working remotely by spring.

The Minneapolis company's security growth is powered by its "Incydr" software. It grew 150% last year and is expected to grow 100% in 2021. However, it is still less than half of Code42 revenue.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.