Minneapolis-based Code42 adding employees again, eyes stock offering within two years

Software-security firm Code42, which shrank from 600 to 500 people over the past two years due to business realignment and economic downturn, is back on a growth track.

"We were doing better than we thought by last summer and our security business has taken off," said CEO Joe Payne. "We had a good year. But it didn't feel like that. It's been challenging. We feel extraordinarily fortunate."

Code42, owned mostly by investment firms, is one of several Twin Cities tech firms, including neighbors JAMF and Arctic Wolf, that have or may sell public shares during the continuing tech boom. The tech sector grew last year, partly to service the work-at-home surge and far-flung IT infrastructure.

Payne said the company's cybersecurity business, anchored by a service called "Incydr," which guards against client-employees swiping confidential material and other threats, grew 150% last year. That business is expected to grow 100% in 2021. However, Incydr is still less than half of Code42's revenue.

CrashPlan, the legacy business that Code42 sells and services for IT departments, is declining and no longer actively marketed. Code42 has focused increasingly on faster-growing Incydr since 2018.

Code42 laid off or furloughed about 50 people last spring in anticipation of the worst from the downturn that happened after the coronavirus swept the globe.

"We hunkered down so we … wouldn't have to raise money for two or three years," Payne said. "We had $30 million in the bank at the beginning of 2020 and ended with $45 million."

He said he expects the company to return to 550 workers within months.

An IPO could occur within a couple of years, as Code42 crosses $150 million in revenue and demonstrates profitable growth.

The company looks to grow sales by up to 40% this year.

Payne, 54, has experience preparing a fast-growing software firm for public ownership. As CEO, he took Virginia-based Eloqua public in 2012 at $11.50 per share. Four months later, huge Oracle bought Eloqua for $23.50 per share, or about $870 million.

Code42 raised $85 million in equity in 2015 from existing owners Accel and Split Rock Partners, and two new ones, JMI Equity and New Enterprise Associates Inc.

Code42's thousands of global clients include Snowflake, one of the biggest IPOs of 2020, and CrowdStrike, the IT security firm.

Incydr doesn't block internal actions like most insider-security software but monitors and records it so that suspicious transactions can be investigated later. Payne compares it to a virtual video-recording device.

Mario Duarte, Snowflake's vice president of security, said most data-protection software is too disruptive and often blocks employee-collaborative activity, a common complaint.

Incydr gave Snowflake the product that "effectively mitigates file exposure and 'exfiltration' risks without disrupting legitimate collaboration," he said in a prepared statement.

Neal St. Anthony • 612-673-7144