June 29, 2017 / 7:30 PM / in 23 days

Exclusive: Cyber security firm Zscaler to hire banks for IPO - sources

SAN FRANCISCO (Reuters) - Zscaler Inc is interviewing investment banks to hire as underwriters for an initial public offering later this year that could value the U.S. cyber security software firm at about $2 billion, people familiar with the matter said.

If Zscaler succeeds in going public, it would be one of the few venture capital-backed cyber security IPOs in recent years, despite a surge in cyber attacks and hacks. Investors have been wary of the companies' ability to constantly advance their software to stay on top of threats.

Zscaler is expected to hire IPO underwriters in the coming weeks, the sources said this week, asking not to be identified because the deliberations are confidential. Zscaler declined to comment.

Okta Inc, an identity management company went public in April, the only cyber security IPO so far this year, and is trading above its IPO price. It has a market capitalization of about $2 billion.

Cyber security companies such as Carbon Black, ForeScout and LogRhythm have been exploring IPOs, but have remained on the sidelines.

Hundreds of security startups have sprouted in recent years, promising "next-generation" technologies to fight cyber criminals, government spies and hacker activists, who have plagued some of the world's biggest corporations.

Many of the younger companies have struggled to stand out from the crowd and grow revenue on a sustainable basis since sophisticated cyber attacks can make software obsolete very quickly.

While the IPO market has reopened for technology companies this year, some investors expect more "meat-and-potatoes" technology offerings of enterprise software firms with moderate valuations but established business models.

Zscaler counts Alphabet's growth equity fund, CapitalG, and private equity firm TPG's growth equity fund as investors. It is seeking a valuation at nearly double its last funding round in 2015. That year, it closed a $110 million funding round and was valued at more than $1 billion, Reuters has reported.

San Jose, California-based Zscaler was founded in 2008 by Jay Chaudhry, who is its chief executive officer. It specializes in cloud security and its software is in 100 data centers globally that can scan incoming and outgoing traffic between corporations and the public cloud to identify threats and protect corporate intellectual property.

Zscaler hired Remo Canessa as a new chief financial officer in February. He had worked as a CFO at public technology companies.

Additional reporting by Lauren Hirsch in New York; Editing by Jeffrey Benkoe

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