Cato Networks Catches $77M

Cloud security company Cato Networks has announced a fresh round of $77 million in funding, bolstering its mission to deliver software-defined wide-area networking (SD-WAN) and a variety of cybersecurity services from its own cloud network.

This round brings Cato’s total funding to over $200 million. Led by original investor Lightspeed Venture Partners, participants include Aspect Ventures, Greylock Partners, Singtel Innov8, U.S. Venture Partners (USVP), and Cato co-founder and CEO Shlomo Kramer.

As with Cato’s last round of $55 million, awarded in 2019, the vendor will use the funds to grow its business, presumably by expanding its SD-WAN managed service network. This includes adding to the 45+ global points of presence (PoPs) around the world that form the basis for Cato’s “over the top” IP network.

Cato's Cybersecurity Cloud

Since Cato was launched in 2015 and led by famous Co-founder and CEO Shlomo Kramer (Check Point, Imperva) it has built a cloud network armed with cybersecurity functions (including access rights based on identity rather than IP address), SLAs, VPN and mobile access, and automatic rerouting in the event of link failure. Customers connect to the network via lightweight on-premises appliances or software clients.

For a growing roster of enterprise customers (Cato says it now has more than 400 worldwide and is adding 50 per quarter), the simplicity of Cato’s delivery model can be faster, more efficient and ultimately cheaper than building large private networks via MPLS or using standalone VPNs. Cato also says its approach is better than so-called do-it-yourself (DIY) SD-WAN, making a point of showcasing how replacing MPLS with SD-WAN gear sometimes causes as many problems as it fixes.

The global COVID-19 crisis has focused attention on more painless remote security, which is exactly the kind of service Cato provides.

"While many companies struggle to enable work-from-home remote access to all employees, Cato customers only had to flip-a-switch,” says CEO Kramer in a statement.

Pedigree Draws Cash

Any company’s funding round generates speculation about future mergers or IPOs. Cato is no exception, especially given its investors’ track records.

Lightspeed Venture Partners, for instance, backed Zscaler (Nasdaq: ZS), Ciena (NYSE: CIEN), and other vendors now enjoying relative public success. The VC also backed Affirmed Networks, which was just bought by Microsoft. (Note: Like Cato, Affirmed got a sizeable $38 million funding round last year, before its acquisition.) And Cato CEO Shlomo Kramer co-founded Check Point Software Technologies (Nasdaq: CHKP) and Imperva, acquired by Thoma Bravo in 2019. He was also an investor in Trusteer, which was purchased by IBM in 2013.

We may not see much IPO activity in the near term, given the current state of the markets. Which is likely to lead to speculation about Cato’s acquisition potential. Cloud security functionality is in high demand, and Cato might be a good target for companies looking to build cloud-delivered edge security portfolio, such as a large cloud provider like Microsoft or Amazon. Cloud providers are seen as better prospective adopters of integrated technologies, and hence a better fit for the kind of services offered by Cato, rather than traditional telcos.

Equinix also has an interest in bolstering its cybersecurity offerings — evidenced in its recently announced arrangement with Fortinet. Fitting in an existing network, particularly one integrated with its own, as Cato's has been, could be a smart move.

And interestingly, Equinix has a strategic presence in Singapore, a major hub for worldwide enterprise networks. Equinix also has a relationship with GIC Private Ltd., Singapore’s sovereign wealth fund. Singtel Innov8, one of the key investors in Cato Networks, is a subsidiary of SingTel, the nation’s leading service provider. One of Singtel Innov8’s investment focuses is on Israeli startups -- like Cato Networks.

Then again, maybe Cato's future will include partnerships with larger security companies. At any rate, Cato clearly has plenty of options to consider, and thanks to its funding, plenty of time to wait for the right one.