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Jesse Rothstein
Jesse Rothstein

ExtraHop CEO Jesse Rothstein doesn’t think his business analytics startup is simply creating a great product.

The pony-tailed entrepreneur — who prior to co-founding ExtraHop worked as a senior architect at F5 Networks — believes they are doing much more than that by defining an entirely new category.

Some big-name investors agree.

ExtraHop today is announcing a whopping $41 million venture capital round, bringing total funding in the 7-year-old company to $61 million. Cash from the round will be used to fund R&D and accelerate the company’s market penetration globally, with the 140-person company expected to double in size in the next 12 months.

Rothstein tells GeekWire that the climate was favorable for raising money, noting that the “time to eat the hors d’oeuvres is when they are passing them around.”

Technology Crossover Ventures led the deal, and was joined by existing investors Madrona Venture Group; Meritech Capital Partners; Isilon co-founder Sujal Patel and others.

TCV’s involvement is notable since the Silicon Valley firm also was an investor in Splunk, which now boasts a $5.8 billion market cap.

ExtraHop co-founder Raja Mukerji accepting the award for Innovation of the Year at the GeekWire Awards earlier this month.
ExtraHop co-founder Raja Mukerji accepting the award for Innovation of the Year at the GeekWire Awards earlier this month.

“Just as Splunk’s platform fundamentally changed the way businesses leverage machine data, ExtraHop has transformed wire data into a key source of visibility and intelligence for IT operations teams with its Wire Data Analytics platform,” said TCV’s Ted Coons, who is joining the ExtraHop board.

Why all of the buzz around ExtraHop? And what’s wire data all about?

Rothstein said that the company’s technology is resonating with hundreds of large customers, from Morgan Stanley to Lockheed Martin to Concur. Those companies use ExtraHop to identify gaps or problems in IT operations, pinpointing issues before they escalate.

To do that, Rothstein said that the company’s technology mines “wire data” which he describes as “everything on the network from packets down to individual transactions.”

“It is real-time. It is definitive… And it is tremendously rich, and tremendously deep,” he said. “Rather than relying on self-reporting, wire data is inherently observational, so what that means is that we know that something is broken because we observe transactions failing. We know that user experience is slow because we can time how long it takes for certain operations to complete.”

This is pretty dense stuff. So to better understand ExtraHop’s technology, take a look at Aaron’s.

extrahop333A furniture and electronics rental business with more than 2,000 stores in 48 states, Aaron’s uses ExtraHop’s tools to monitor wire data across the various stores. In that regard, ExtraHop is kind of like the hall monitor, making sure everything is working properly.

“All of that commerce that is occurring back to their data center  is wire data that we need to observe,” said Rothstein. “If transactions fail or if it is somehow slow — customers as well as sales clerks — could become frustrated or in severe cases be unable to complete the process.”

While ExtraHop automatically attempts to root out problems before they escalate, a growing part of the business involves simply analyzing the massive amounts of data.

That means a retailer could analyze how long it takes a clerk to perform a check-out operation or what times of day certain orders are completed. That can help businesses improve, becoming more efficient.

ExtraHop provides its own data analysis tools, but Rothstein said unlike some rivals they are not trying to lock customers into a closed and proprietary system. That’s a big philosophical difference between ExtraHop and some of its rivals, he said.

“We have access, in many cases to more data than other vendors because the wire data is so deep and so rich and so voluminous, and while we do provide our own tools for visualization and analysis, our philosophy is that this data should be open. So, we have open APIs where our users and customers can access this data. We actually have built interfaces and connectors to import this data into other systems, and these systems are sometimes security information and event management systems and they can be big data stores such as MongoDB and there absolutely can be integrations … into other systems for data visualization and manipulation such as a Tableau.”

As a new software category, Rothstein said there are very few “apples-to-apples comparisons” in terms of competitors. But he said the closest potential rivals are Netscout and OPNET, which sold to Riverbed for about $1 billion in cash and stock in October 2012.

Rothstein declined to comment when asked if they’ve received any acquisition offers to date.

The company is growing rapidly in a space that Gartner has dubbed IT Operations Analytics, with revenue for ExtraHop growing 150 percent between 2012 and 2013.

The reason for that, according to Rothstein, is that the “pain is so severe” for companies dealing with any sort of IT glitch or security failure. Speaking of security, that’s a growing area for the company, one which the company will continue to tap with the new funds.

“ExtraHop is not really a security company, but there are often security implications to the insights that we derive from wire data,” he said. “One of the advantages of the wire data approach is that threats can’t really hide from wire data, no matter how advanced or persistent they are.”

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