Application Security Company Veracode Raises $40 Million as it Plans IPO

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Application risk management company Veracode announced a $40 million funding round and hinted at its future plans, including a possible acquisition and an IPO on Thursday. The funding round was led by Wellington Management Company, LLP, and included other early investors.

Veracode was formed in the Boston area in 2006 and became a Gartner Magic Quadrant Leader in 2010 offering a cloud-based platform for web, mobile, legacy, and third-party enterprise application security.  The company claims it is the most widely used security offering of its kind, following a year in which it grew by 50 percent.

While the top competitors in the application layer security market are heavyweights including HP and IBM, Veracode believes its “next-generation” approach gives it an advantage.

“The software wasn’t written with a hostile environment in mind,” CEO Bob Brennan told Fortune. “We can button it up better than every other company, and the secret sauce is that we don’t need access to the source code. We have an entirely different approach that disrupts the whole notion of the software supply chain.”

In addition to considering acquisitions and an IPO, Veracode will use the funding to invest in sales, marketing, and R&D, as part of a global expansion plan.

“Veracode’s subscription-based business model, market leading technology and world-class application security expertise and service levels have enabled the company to achieve high renewal and expansion rates with high gross margins,” Veracode CFO Ed Goldfinger said. “We’re looking forward to continuing to execute against our aggressive growth ambitions while securing the critical application layer for major enterprises worldwide.”

According to Fortune, the latest round brings the company’s total funding to $134 million.  The likelihood of an eventual IPO was explicitly acknowledged by the company after it hired additional legal counsel in June.

Application layer security has received a spike in attention following a highly publicized iCloud breach and the prolonged Heartbleed vulnerability.

Web application attacks are the most common threat to cloud hosting environments, according to a March 2013 Alert Logic report.

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