Cisco buys Israeli start-up Riverhead Networks for $40m

Riverhead Networks develops solutions that block Distributed Denial of Service (DDoS) attacks.

Sources inform "Globes" that telecom equipment manufacturer Cisco Systems (Nasdaq:CSCO) has acquired Israeli start-up Riverhead Networks for about $40 million. Riverhead Networks develops solutions that provide integrated analysis and enforcement to block Distributed Denial of Service (DDoS) attacks over enterprise networks. The company's investors include Cisco, Gemini Israel Funds, Sequoia Capital, Koor Corporate Venture Capital and Intel Capital.

Distributed denial of service (DDoS) attacks pose perhaps the most serious threat to the Internet and online businesses today. Designed to paralyze systems by swamping servers, links and network devices with malicious, unsolicited traffic, DDoS attacks can quickly bring an organization to its knees, blocking legitimate transactions and preventing users from performing missioncritical operations.

DDoS attacks are costing businesses millions of dollars a month in lost revenue, compromised productivity, and tarnished reputations. A Yankee Group study has noted that 9% of US enterprises are likely to be subjected to DDoS attacks, at a per hour cost of $50,000.

Riverhead was founded in 2000 as WanWall, and changed its name during its second funding round. Potential clients include large enterprises, international e-commerce websites, banks and Internet service providers (ISPs). The company's current business model is built on sales of hardware costing hundreds of thousands of dollars.

Initial investors were Gemini Israel Funds and Koor Corporate Venture Capital, who were later joined by Intel Capital. The second round of funding was held last May, at which time the company raised $11 million from the existing investors, together with Sequoia Capital, Cisco and private investors. Prior to this, Cisco had invested in a competing company, Arbor Networks. It is believed that Cisco considered acquiring Arbor but in the end decided on Riverhead.

Riverhead began initial sales in October, 2001. Management felt that the company would require another funding round, but that problem was solved today by Cisco's acquisition. Riverhead Networks CEO Yuval Rachmilevitz was an entrepreneur in residence at the Magnum Communications Fund, before which he was at Gilat Communications (renamed Mentergy). Former chief scientist Dr. Orna Berry is the company chairperson.

Upon close of the acquisition, Riverhead will become part of Cisco’s Internet switching business unit, reporting to Luca Cafiero, Senior Vice President, and its products will be sold through Cisco sales channels.

Published by Globes [online] - - on Monday, March 22, 2004

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