The founders of a new-to-Nashville cybersecurity startup have netted $38 million from venture capital investors in Florida and from an arm of a life insurance giant. It's among the largest venture raises within the last few years for a Greater Nashville business not in the region's huge health care industry, according to data from PitchBook. Here's what those founders have on tap, as shared in a local exclusive with Nashville Inno.
Company name: Phosphorus Cybersecurity Inc.
Amount raised: $38 million, at a valuation "north of $100 million," co-founder and CEO Chris Rouland said in an interview.
From whom: The chief investors in the Series A round are MassMutual Ventures, which is the venture investment arm of the 170-year-old life insurance company, and SYN Ventures, which is based in West Palm Beach, Florida.
What they do: Phosphorus aims to secure the proliferating "Internet of Things," devices connected to a network that are exchanging data, and prevent those devices from hackers. The devices, which easily outnumber the global population, can be everything from printers and security cameras to smart thermostats, HVAC systems, badge readers and more. This is Rouland's third startup, in a security career that also includes a stint with IBM following that company's $1.3 billion acquisition of a firm where Rouland was chief technology officer.
Why it matters: Rouland and his wife and co-founder, former Home Depot executive Rebecca Rouland, started Phosphorus with third co-founder Earle Ady. The Roulands moved the business to Nashville in mid-2021 with multiple large clients in tow, choosing Music City over Austin as well as Atlanta and Southern California, where Phosphorus had offices at the time.
What the funds will be used for: "The big shift around this is moving from the founders selling to scaling, so that [selling] can happen somewhat autonomously — building a professional sales force," Rouland said. He also wants to hire more engineering talent and technical support roles to provide more national coverage for his growing client list. He'll also put some funds into courting customers. "It's funny," Rouland said. "I keep trying to go visit guys in New York, and they'll say 'Hey, can we visit Nashville instead?' "
Investor strategy: "We spent three years just building before we even talked to a customer. I haven’t done that before, and it’s a bit riskier on the founders, because you're taking capital later," Rouland said. "But that allows you to have more impactful institutional financing. We were able to leapfrog a traditional, smaller Series A round. These guys like to build companies … They’re builders, not flippers. They want to build something big, and that’s what I want to do."
The top line: Rouland declined to disclose revenue, which he said he's aiming to triple this year and triple again in 2023. "The reality is, we're not trying to make a profit in the next couple of years. We want to grow fast. That's why we added venture money: We want to grow faster than we can organically," he said. "We're not trying to figure out the market or the product. That’s what we’ve done. We're trying to grow our business and sell a product."
Counting heads: Phosphorus had 12 full-time employees in mid-2021, and now has 27. Four are based at the company's Nashville headquarters, which now is in the 12South neighborhood. "Being a born-in-Covid company, we were born distributed. We hired the best talent, wherever we could find it," Rouland said. He expects headcount to hit 50 in 2024, with many of those roles in software engineering. "I really want to get engaged with local universities; I haven't turned that spigot of talent on just yet," he said. "Putting a good stake in the ground, with a healthy Series A, will help us engage and recruit more. Now, with this in the bank, we have an office we can fill up."
Now on board: As a result of the investment, Phorphorus added SYN Ventures managing partner Jay Leek to its board of directors. Mark Goodman, managing principal at MassMututal Ventures, will be a "board observer" (someone who participates in board meetings and receives all information provided to the board, but who cannot vote).
