The economic climate may be lackluster, but the security sector seems to be attractive still. Security appliances firm Teros, which closed an over-subscribed third round of venture capital financing recently, is witness to this. Teros will use the $12 million it raised to expand sales and marketing, accelerate product development, and pursue possible strategic acquisitions in the application security market.

Formerly known as Stratum8 Networks, Teros develops security appliances to protect Internet applications and data from malicious attacks. Teros’ appliances combine a learning engine and behavior-blocking technology that learns an application’s behavior, inspects incoming and outgoing traffic, and allows acceptable behavior to be executed while blocking unacceptable behavior. As a result, it protects against known and undocumented security vulnerabilities and attacks, without relying on signatures. This approach prevents false positives and eliminates the need for manual configuration, claims the company. The idea is not to burden the customer with security administration tasks.

Teros’ customers are Fortune 1000 companies, government agencies, and large web site operators that need to protect sensitive web-based applications and data. Teros is focused on vertical markets such as financial services, B2C e-commerce, B2B e-commerce, healthcare, government, and defense/intelligence.

“Application protection is one of the few remaining untapped areas in the Internet security market,” says Lehman Brothers analyst, Israel Hernandez. “This space is wide open, so there’s plenty of opportunity and room for innovation. We expect application level security to emerge as an increasing component of the security infrastructure over the next 12 to 24 months.”

Institutional Venture Partners (IVP) led the investments in the current round. “We look for companies with exceptional potential in rapidly-growing markets,” says Steve Harrick, Managing Director for IVP. Founded in 2000, Teros has till date a total financing of $26.5 million. Abhishek Chauhan, CTO, founded Teros along with Rajiv Mirani, VP Of Engineering and Prince Kohli, VP of Technical Operations.