Austin Identity Management Software Maker SailPoint Sets New Course

8/18/14Follow @angelashah

Many startups grow by gobbling up competitors or by becoming part of a bigger company. Austin, TX-based SailPoint is pursuing a strategy that allows it to do both.

On Wednesday, the maker of identity management software announced it sold a majority stake to Thoma Bravo, a private equity firm located in Chicago and San Francisco. Terms were not disclosed but Mark McClain, SailPoint’s CEO and founder, says the deal came about as his firm was looking for investment to fuel growth.

“In this way, the early investors have the opportunity to cash out; they’re eight to nine years in their investment,” he says. “Thoma Bravo has a strong track record … they can use their very big checkbook to build the company quickly.”

The remaining SailPoint shares post-cash out were divvied up to company employees. “We want to retain people and keep people motivated,” says Kevin Cunningham, the company’s founder and president.

Think of identity management and ID theft is what comes to mind. These are the hackers and phishers who grab headlines as they steal credit card or bank account numbers, such as the so-called CyberVor attack during which it is believed that a Russian criminal gang unlawfully obtained 1.2 billion usernames and passwords, calling into question the authentication protocols of some of the world’s most popular business websites.

But another facet of identity management relates to the internal controls businesses have over which employees, contractors, or vendors have access to which information at the company. “Whatever authentication you choose, what we do is set things up correctly so that, within that system, the right people are getting to the right data,” McClain says.

As more and more business is done via the cloud or on mobile networks, it becomes even more important to secure access. The ubiquity of software as a service and the layering on of new applications further complicates this. Companies do not want to be the next headline, Cunningham says.

“There is also a business agility aspect,” he added. “You want to make sure you’re making the system available to people who legitimately need it to do their jobs. They need to quickly turn on the access as well as turn it off.”

SailPoint’s customers include “highly IT-centric and highly regulated” companies such as those in the financial services, healthcare, and insurance industries, with 10,000 or more employees, McClain says. Now, SailPoint is targeting firms just below those—ones with about 3,000 workers. The company competes with large, well-known software companies such as Oracle and IBM for those clients.

A few days before the SailPoint announcement, IBM reported that it had acquired identity-management company Lighthouse Security Group. In July, IBM purchased Rome-based CrossIdeas as well.

McClain and Cunningham founded SailPoint in 2005 following the adoption of Sarbanes-Oxley financial regulations as well as heightened awareness of adhering to HIPAA standards in an era of electronic medical records. “Governments have recognized that companies haven’t historically protected this information,” Cunningham says.

A high-profile example of this was in 2008 when a Societe Generale trader incurred nearly $7 billion in losses without authorization to make such bets. SailPoint’s founders say that sort of activity would have been spotted by its software, and well before such losses could be racked up.

SailPoint raised about $21 million in three rounds of equity funding from investors such as Austin Ventures and Silverton Partners, both based in Austin, as well as Lightspeed Venture Partners in Menlo Park, CA. The last round was in 2008, and McClain and Cunningham say the company is profitable.

Over the years, the company grew largely by acquisition of smaller firms, including that of Cloudmasons and Beacon Professional Services, both based in Austin.

More than 300 people now work at SailPoint in offices in Europe, India, Israel, and Singapore as well as in its Austin headquarters. Last year, SailPoint announced it had surpassed $100 million in revenue.

Both men say they are staying in their current roles and don’t expect much change in the company’s day-to-day operations. “Now, we’re talking about a whole different class of acquisitions; we can swallow much bigger fish leveraging the big pockets of Thoma Bravo,” Cunningham says. “We now have an industrial grade harpoon.”

Angela Shah is the editor of Xconomy Texas. She can be reached at ashah@xconomy.com or (214) 793-5763. Follow @angelashah

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