Arctic Wolf, an Eden Prairie-based cybersecurity firm, announced Thursday that it has raised $401 million in convertible debt.
The round was led by existing investor Owl Rock of New York, with participation from Greenwich, Conn.-based Viking Global Investors, also an existing investor. New investors included the Ontario Teachers’ Pension Plan and New York-based Neuberger Berman.
It's the second $400 million funding deal by a Twin Cities cybersecurity company to be announced this week. On Wednesday, Minneapolis-based NetSPI said it had raised $410 million in growth funding from investment firm KKR.
Arctic Wolf evaluated different options for raising funds, including an equity sale, but opted for debt due to "our stage of hyper-growth," said CEO Nick Schneider. Arctic Wolf doesn't disclose revenue.
The company’s data platform screens 2.5 trillion security events per week and alerts customers to potential threats. It has more than 3,000 customers, ranging from large companies to small and mid-sized businesses, according to the announcement.
Schneider said Arctic Wolf plans to use the funds to expand its global reach, develop its security operations data platform and acquire other businesses. Recent expansions into South Africa and northern Europe helped grow the company's workforce to more than 2,000 from about 1,500 at the end of last year, and it's planning to step up growth in the Asia-Pacific region.
In 2021, the company completed a $150 million Series F round led by Owl Rock and Viking Global Investors. That deal valued the company at $4.3 billion. To date, Arctic Wolf has raised $900 million to date, $499 million of which has been in venture capital, Schneider said.
“We’re delighted to expand our partnership with Arctic Wolf,” Ilan Aharoni, vice president at Owl Rock, a division of New York, N.Y-based Blue Owl Capital, said in the announcement. “Many businesses lack the expertise and resources to secure themselves against today’s growing challenges. Arctic Wolf’s continued growth and expansion amidst a tumultuous market is a testament to the strong value proposition of its one-stop cloud native platform coupled with its differentiated delivery model.”
TechCrunch has a report on the deal, noting that debt-backed funding rounds have been used more this year than last as traditional venture capital activity has slowed. It also points out that there are some upsides to debt: As long as the company generates enough cash, issuing debt can give fast-growing companies the capital they need without diluting investor holdings the way an equity sale can. The convertible notes issued by Arctic Wolf can be converted into stock in the event of a public offering.
Arctic Wolf was previously rumored to be planning to go public — early this year it added two board members with IPO experience — but that talk has cooled along with the economy.
Asked about IPO plans, Schneider said the company is always thinking about "financial alternatives" but does not comment on "future plans or rumors."
"It’s no surprise that a recession is top of mind for everyone, however, cybersecurity needs aren’t going to slow down," he said. "We see greenfield growth opportunity in the face of the current macro environments – both threat and economic – and we continue to focus on accelerating and expanding our business globally for the long-term."
Morgan Stanley served as financial adviser to Arctic Wolf while Cooley served as its legal counsel. Latham & Watkins served as Owl Rock’s counsel.
