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Eyeing profitability within two years, security software maker Bit9 Inc. has raised $10 million in a third round of venture capital to expand a vast code library used to identify unwanted software, including spyware, malicious viruses and worms. The deal, which brings total funding in the five-year-old Cambridge, Mass.-based company to $25.8 million, was led by new investor .406 Ventures of Boston. It joined previous investors Kleiner Perkins Caufield & Byers of Menlo Park, Calif., Highland Capital of Lexington, Mass., and Atlas Venture of Waltham, Mass. Bit9 chief executive George Kassabgi said the round was essentially an internal funding, as .406 founder and managing director Maria Cirino was already a Bit9 director but only recently closed her own fund. Kassabgi would not disclose terms of the new investment, but said the company, which is believed to have the industry's largest code library of unwanted software, did not even consider going to new investors after Cirino and existing backers made an offer. "I won't discuss valuation, but it was up enough that I saw no reason to go outside," Kassabgi said. "Maria has been a board member since 2005, when we invited her on because of her background in the security industry, and when she created .406 she knew she wanted to invest in our next round." Kassabgi expects the funding to take the company to profitability sometime in 2009. In the interim it will continue to invest in expanding its core Parity product and in building a library of "executable files" that it has identified as potential problems, a database it licenses as a separate software-as-a-service product. The company licenses its knowledge base to third parties, including forensics software provider Guidance Corp. of Pasadena, Calif. The CEO expects those licenses to represent a significant percentage of the company's total revenue going forward. Though all of its core product development is conducted in Cambridge, Kassabgi said the company has an offshore operation in Eastern Europe that is engaged in continuous search and evaluation of every executable file it can get hold of. Each file is run through a system to test for potential threats. "We can take any kind of cryptographic hash and resolve precisely where a commercial application came from, to determine whether to allow it on the network," Kassabgi said. Founders of Bit9 had previously pioneered intrusion detection systems at Waltham, Mass.-based Okena Inc., before selling the company to Cisco Systems Inc. for $154 million in January 2003. But while traditional virus protection programs, including Okena's, focus on identifying potentially harmful software by looking for aberrational behavior, Bit9's Parity product detects and stops unwanted software by recognizing threats before they execute.The product protects networks from security breaches such as viruses but also protects networks from less malicious applications, such as file sharing programs and games that can also harm productivity. Bit9's product resides on both the server and on individual desktop and laptop computers, and prevents users from downloading unauthorized software even when they are not connected to the network. The product is sold as software-only but resides on a dedicated single function server. Cirino said she was initially attracted to joining the Bit9 board based on the founders' success with Okena, and after the company showed its early product could identify threats from unexecuted files at the edge of the network. "They demonstrated that at the nodes of the network early on, and they have since been able to scale that to the needs of the largest enterprise networks," Cirino said. "The technology behind this innovative approach to securing enterprise desktops and laptops is without peer within the industry, and .406 Ventures is pleased to lead the round." Bit9 did not use an outside financial adviser in putting the round together, and had legal work on the deal from Dave Gammell of Brown Rudnick Berlack Israels LLP in Boston. Investors were represented by James Epstein of Pepper Hamilton LLP in New York.  Deal Video
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