Kubernetes Begins Year With A Bang — And You Can Expect More

The Kubernetes sector already has seen some significant dealmaking in and around the space just three weeks into the new year  — and that could just be the tip of the iceberg, according to those who watch the space.

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As the use of containers in building applications has grown through the years, open-source platform Kubernetes has become the dominant way to deploy and manage those containers — and the space has become fertile ground for investments and dealmaking.

On January 7, San Jose, California-based Lacework — whose larger cloud security platform includes securing workloads in Kubernetes — closed a $525 million round led by Sutter Hill Ventures and Altimeter Capital and valuing the company at more than $1 billion.

That same day IBM’s Red Hat announced it would acquire Mountain View, California-based StackRox, a Kubernetes-native security platform, for an undisclosed amount.

The deals did not surprise those who watch the sector.

“About 18 to 24 months ago, you really saw Kubernetes take over,” said Ubaid Dhiyan, a director at investment bank Union Square Advisors. “Now companies are building on top of Kubernetes.”

What is Kubernetes?

Kubernetes — an open-source platform for automating deployment and management of containerized applications — was developed out of Google more than six years ago.

The platform has given rise to companies that help offer layered services such as storage, orchestration or security on top of Kubernetes. Crunchbase News even highlighted the sector as one to watch this year for both enterprise software and cybersecurity after venture funding and dealmaking has taken off in recent years.

“You are seeing interest in companies that are making it easier to use Kubernetes,” Dhiyan said.

In 2018, Palo Alto Networks bought RedLock for $173 million in 2018 and followed that with its acquisition of Twistlock for $410 million and PureSec for an undisclosed amount in 2019 — using that trio of deals to create its cloud security offering Prisma Cloud. Last April, Rapid7 bought cloud security posture management company DivvyCloud for approximately $145 million.

Those deals were followed by less security-centric deals in the Kubernetes space, as enterprise software giant SUSE bought Kubernetes startup Rancher Labs for a reported $600 million in July. Additionally, Pure Storage spent $370 million in September to buy Portworx, which handles data storage and management for Kubernetes.

Finally in October, Veeam Software bought Los Altos, California-based Kasten, a provider of Kubernetes backup and disaster recovery, for $150 million in cash and stock.

Others who provide security or other services on top of the Kubernetes platform also have peaked investors’ interest. Last May, Israel-based startup Aqua Security raised $30 million. In September, San Jose, California-based Nirmata raised an undisclosed round. The company helps with Kubernetes management and deployment.

Before being acquired, StackRox and Rancher Labs also successfully raised money last year.

Where to look next

Kubernetes and services layered on top of the platform will likely see more interest from both strategic and investors, said Dhiyan.

This is partially due to the fact that containers and virtualization technologies help make a company’s applications and other assets more portable to other cloud services, not locking them into one provider and allowing an enterprise to choose between hybrid and public cloud options.

Dhiyan said new technologies that offer monitoring and “observability” — the ability to understand what the data is actually saying — could be places investors and strategics look next.

He said cloud players such as IBM — even after Red Hat’s StackRox acquisition — and Hewlett Packard Enterprise will continue to eye container technology, as could a virtualization company like VMware. Even those more on the hardware side such as Cisco and Juniper Networks could look at creating their own container orchestration story.

Umesh Padval, a venture partner at Thomvest Ventures, said Kubernetes is undoubtedly the way companies and developers will manage containers moving forward and he expects the space to remain hot. He is currently monitoring a handful of companies in the space for possible investment.

“I’m tracking the next-gen Rancher Labs,” he said.

While interest in the space is clear, it is less certain if companies that play in the Kubernetes environment can eventually grow into their own large, public companies.

Padval said Kebernetes and container security companies could become attractive to DevSecOps — the intersection of software development, IT operations and security — firms looking to grow their market.

A lot of the security players eventually will explore the M&A route, as broader cloud security players would be more viable to stay independent, said Dhiyan.

Said Thomvest’s Padval, “I’m not sure you will see a $2 billion company founded in the Kubernetes ecosystem.”

Illustration: iStock


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See the pitch deck that landed startup Lacework $525 million in the largest investment round for a cybersecurity company in the last year

Summary List PlacementHow do you convince investors to give a startup $525 million? 
“You have to have a lot of proof points,” Lacework CEO Dan Hubbard told Insider, after his Silicon Valley startup raked in a half-billion-dollar round after previously raising a total of $74.4 million. 
The six-year-old Silicon Valley company addresses the booming area of providing cybersecurity to companies growing and moving their operations to public cloud providers like Amazon Web Services or Microsoft Azure.
Perhaps the most important proof point is the total addressable market (TAM) that Lacework is tackling – a figure that gauges revenue opportunity – is climbing 20% year over year and reaching $13 billion in 2024. Analysts back that up.
Analyst Daniel Ives, managing director of equity research at Wall Street analyst firm Wedbush Securities, told Insider on Friday that “there’s $200 billion up for grabs in the next five years in cloud security.”
“We have the right product in the right market at the right time,” Hubbard told Insider last week. “The problem has come to us.” 
The company says it has seen revenue triple each of the past two years as more businesses build and run applications on the major cloud platforms. The company did not disclose revenue or specific valuation, but says the latter is above $1 billion. 
PitchBook shows the funding round was the largest in the cybersecurity industry for the past year, and the 22nd largest in all US industries over that span. 
It could have been even larger, Hubbard said. “There was an incredible amount of interest. There are going to be some people who feel left out.” 
Mike Speiser, managing director at Sutter Hill Ventures, compared the startup to his firm’s runaway success investment Snowflake, which has rocketed to a market cap of some $76 billion after its September IPO. 
Here’s the pitch deck Lacework used to land the mammoth funding round. Some slides with customer and competitive data have been removed by the company to protect proprietary information.


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