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ESentire Inc., the Cambridge, Ont., digital security software and threat intelligence provider, has raised $19.5-million (U.S.) in new venture capital as it looks to expand its sales teams and operations centres internationally.

The financing, while a relatively large number in Canadian VC circles, is part of a trend of significant investments in the security sector. U.S. companies in the digital security field raised $2.5-billion with 225 investments in 2014, though estimates from CB Insights suggested 2015 saw a slight slowdown.

So far in 2016, fraud prevention firm Pindrop raised $75-million, Malwarebytes raised $50-million and Shape Security pulled in $25-million. Mega-startup Palantir, which doesn't work exclusively in security software, has collected $2.4-billion in venture financing since 2006.

J. Paul Haynes, eSentire's CEO, said his relatively modest capital injection was by choice.

"We didn't need as much. We have more than 500 customers; lots of them are financial service and legal clients," he said. ESentire raised $7-million in 2013, and $14-million in 2014.

The new cash will help the company grow more quickly, Mr. Haynes said. While 80 per cent of his business is in North America, he has already committed to adding 100 people to the company's European operations, based in Cork, Ireland. The company has yet to decide where it will open a third regional operations centre, but it is looking at continental Europe and Mr. Haynes was recently touring Asia.

Leading the funding was Edison Partners of McLean, Va., and Toronto's Georgian Partners. One of Georgian's last investments in the data security space was quite lucrative; device identification firm 41st Parameter was sold to Experian PLC for $324-million in 2013. Also involved in the eSentire deal are Cisco Investments, Northleaf Ventures Catalyst Fund, and a new investor, Toronto's Information Venture Partners (IVP).

"Security had always been a big category spend and we expect that trend to continue," said David Unsworth, co-founder and general partner with IVP. "Cybersecurity companies are trading at a premium and VC investment is indeed increasing. I think that is simply reflective of the fact that threats continue to evolve from physical to cyber and continue to increase in sophistication. With larger budgets being allocated to fighting these threats there are tremendous opportunities to fund great teams with differentiated technology and generate VC returns for our investors."

Mr. Haynes attributes the excitement in the sector to the constantly evolving threats from malicious actors, which also forces security companies to spend big on R&D and engineering talent. Among the new threats that eSentire is already working to untangle is the trend toward malware and viruses being encrypted by their creators. "Encrypted traffic can't be interrogated like a normal virus," said Mr. Haynes, who has also seen a rise in encryption used in so-called ransomware that locks a device and then sells the data back to a customer.

"You show up to work and every day it's a new gunfight," Mr. Haynes said.

With files from reporter Sean Silcoff

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