Epsagon stopped lucrative funding round in favor of $500 million Cisco acquisition

In what was one of the most impressive M&As involving an Israeli company in recent years, Cisco announced on Friday that it was officially acquiring Epsagon. The deal is estimated to be in the region of $500 million, with co-founders Nitzan Shapira and Ran Ribenzaft, both Israeli military intelligence veterans, taking their company to that valuation within just four years. The deal, first reported by Calcalist, will turn most of Epsagon's employees into millionaires.

Prior to reaching the agreement with Cisco, Epsagon was in the midst of closing a Series B funding round reaching tens of millions of dollars at a $200 million valuation. Ultimately, Epsagon decided to accept Cisco's offer instead due to the global impact it will be able to make as part of an international corporation and as it will also result in many of the company's employees receiving millions of dollars for the sale of their share options.

Epsagon develops software-as-a-service (SaaS) automated end-to-end monitoring technologies for serverless cloud-based systems, specializing in monitoring and tracing for microservices and cloud-based applications. Serverless cloud-based systems are highly decentralized and event-driven, making it difficult to identify potential performance issues. Epsagon’s software uses artificial intelligence to predict and troubleshoot such issues.

Epsagon has raised just $30 million to date over three funding rounds from backers including DTCP, Lightspeed Venture Partners, USVP, and StageOne Ventures. The VCs that invested in Epsagon are set to make a return of at least 10 times their investment.

The company currently employs 60 people, 35 of them in Israel and the rest in its New York offices. Epsagon serves hundreds of clients, including giant companies like Deloitte and Toyota. The company's R&D center in Israel is expected to expand significantly following the acquisition.

This will be Cisco's second acquisition in Israel within three months after it purchased Sedona for an estimated $100 million in May.

"Epsagon's technology and talent align well with Cisco's vision to enable enterprises to deliver unmatched application experiences through industry-leading solutions with deep business context," Liz Centoni, Cisco's Chief Strategy Officer and GM of Applications wrote in a blog post. "By contextualizing and correlating visibility and insights across the full stack, teams can improve collaboration to better understand their systems, solve issues quickly, optimize and secure application experiences and delight their customers."