Security with sticking power; why we invested in Duo Security

We would like to send a big congratulations to Duo Security, who today announced that they’re being acquired by Cisco for $2.35 billion. Today’s news marks a new step in Duo’s journey, and the fundamental future of the security industry as a whole.

Duo first came on our radar in mid-2014 as we evaluated trends in the security sector. As part of our research, we spoke with countless CISOs and Board Directors of large companies. Many echoed similar sentiments, that too many startup security software vendors offer complicated products solving outlier issues, when buyers typically wanted streamlined solutions addressing major problems. Additionally, many of the tools being used to combat these major issues were antiquated.

Armed with this feedback, we focused our search on companies providing next generation alternatives to existing markets. Multi-factor authentication was one such area, as it was core to protecting passwords; something every enterprise needed to do. Historically, EMC (through its RSA subsidiary) had owned this category, generating billions in revenue via their hardware-based keychain tokens. We repeatedly heard that a small Michigan-based startup, Duo Security, had pioneered a product: An app allowing users to authenticate themselves through their mobile device. Our interest was piqued.

Getting to Duo, however, wasn’t easy.

We reached out to contact the company more than 40 times, with no response. Never ones to leave a nut uncracked, we leveraged the Lead Edge Capital network for an intro. Multiple conversations ultimately led to a Duo Board member who offered an intro to Dug Song, Duo’s CEO. Our first discussion was short and resulted in an introduction between Dug and the former CIO of General Motors, a fellow Michigander. While Duo wasn’t raising money, they assured us that if they did they would let us know, as they saw how helpful our network could be.

The time finally came.

In early 2015, we flew to Michigan and were fortunate enough to invest in Duo’s Series C round.

We liked Duo for many reasons, but we were particularly interested, because they didn’t succumb to some of the major pitfalls we routinely see in security companies.

• First, many security companies have a narrow user base, but Duo is a product that engages with almost every user in an organization. When nearly every person in a company uses Duo nearly every day, it makes for a much stickier product.
• Second, many security-focused companies offer point-solutions and have difficulty building out a multi-dimensional platform. Duo’s beachhead was the aforementioned Multi-Factor Authentication solution, but they ultimately built a Trusted Access Platform that included Device Visibility / Vulnerability Assessments, SSO and a variety of other applications.
• Third, we see way too many security startups burn through $80m to get to $20m in revenue. Duo was exactly the opposite. They burned about $10m to get to $10m in ARR, and ultimately burned under $20m to get past $100m in ARR. This capital efficient growth is rare in today’s market.
• Additionally, Duo had a NPS of 68, one of the highest of any software company we’ve encountered. The unbridled passion users had for the product was infectious. That alone was reason to invest!

Fast forward a few years later and our enthusiasm never waned. We co-led Duo’s Series D round in 2017 and were fortunate to work with some wonderful co-investors. As part of the transaction, Duo brought on Lorrie Norrington, Lead Edge Capital Operating Partner as a Board Director. She successfully helped them with numerous strategic objectives, including recruiting multiple new industry focused board members, building out board committees, and creating a robust governance structure.

When all was said and done, we invested over $90m into Duo through our participation in both primary and secondary financings. We couldn’t be prouder of the company, the team, and their accomplishments.

We’d like to thank Duo’s executive team and employees across the world for allowing us to take this journey with them (and for finally picking up the phone)!