Atlanta History: Notes from the ISS S-1 IPO Filing

Internet Security Systems, easily the most famous and successful B2B Atlanta tech startup of the past 15 years, filed to go public in late 1997 with a target IPO date of January 20, 1998 (SEC filing for ISS Group, Inc. IPO). After a successful run as a public company, IBM bought ISS in late 2006 for $1.3 billion in cash (source: IBM.com). Being a connoisseur of the Atlanta startup and technology community, I wanted to learn more about ISS. SEC documents, like an S-1 filing, are some of the most honest and transparent business documents you’ll ever read.

Here are notes from the 1997 ISS Group, Inc. IPO filing:

• Proposed raising $31.6M (pg. 1)
• Over 1,500 customers (pg. 3)
• First product was distributed as shareware in 1992 and the business wasn’t incorporated until 1994 (pg. 4)
• Selling 2,500,000 shares out of 15,878,428 shares total (pg. 4)
• Revenues and employees (pg. 8)
  1995: $257,000 / 7
  1997: $13,467,000 / 141
• 80% of revenue from the Internet Scanner product (pg. 9)
• VCs bought 3,650,000 Series A shares (pg. 18) representing 23% of the business
• VCs bought 2,086,957 Series B shares (pg. 18) representing 13.1% of the business
• Channel partners receive discounts ranging from 35% – 50% off list price (pg. 21)
• Accumulated deficit of $5.2M (pg. 21)
• Gross margins (pg. 22)
  1995 – 98.4%
  1996 – 99.6%
  1997 – 95.0%
• Strategy (pg. 29)
  – Continue leadership position in security technology
  – Expand domestic sales channels
  – Promote professional services capabilities
  – Expand international operations
  – Create category awareness
• Field sales reps focus on opportunities that have at least $200,000 in deal value (pg. 36)
• Management age at time of IPO (pg. 41)
  Tom Noonan – 37
  Christopher Klaus – 24
• Christopher Klaus founded ISS in April 1994 and Tom Noonan joined in August 1995 (pg. 41)
• VCs owned 31.1% of the equity after the offering (pg. 50)

The ISS S-1 is fascinating to read as it is an example of a company that went public with a small amount of venture capital raised in a short period of time, something that’s no longer possible due to the much larger revenue requirements to be public along with costs related to Sarbanes-Oxley. Entrepreneurs interested in the history of the Atlanta technology community should read the ISS S-1.

What else? What are some other thoughts on Internet Security Systems and their IPO?