The UK has made concerted efforts in recent years to attract, incubate and grow digital talent and innovation within the country. Consequently, we are witnessing a proliferation of new tech companies on a scale never seen before.
One aspect of this growth concerns cybersecurity. These startups are continuously breaking new ground in the sphere of online protection for consumers, companies and governments, Many of them have produced big returns for the investors who have funded them.
Here are just a few prominent examples…
Recently valued at $1.65 billion and with the latest funding round raising $50 million, Darktrace has increased its valuation by 32% in the space of just four months.
Founded in 2003, Darktrace identifies and tackles cybersecurity threats as they appear using AI technology (artificial intelligence) and machine learning. The rapid expansion of the company has enabled it to increase its staff by 60% over 12 months, up to 750.
With prominent hacks in the recent news (e.g. the British Airways attack which compromised nearly 400,000 customer credit card details), investors should take note that the services of cybersecurity firms like Darktrace are likely to be in high demand for years to come.
The latest funding round for Garrison secured $30 million, one of the largest rounds by UK investors in 2018. It’s stated mission is to provide a secure web browsing experience for companies regardless of the content or links their staff click on.
Essentially, Garrison acts as a “gap” between web content and the company’s device, which the user is utilising to access the former. This means that malicious web content only comes into contact with the “gap”, rather than the company’s IT systems.
In the space of just 12 months, Garrison has almost doubled its staff numbers to over 50 people. It has now secured nearly £35 million in funding over the course of two rounds.
This exciting and interesting UK cybersecurity business raised $10 million in its Series A funding in the middle of 2018, led by Evolution Equity Partners.
Founded in 2014, the Panaseer platform uses proprietary algorithms to “map out” a business’s various assets, and provide “cyber hygiene” by monitoring and cleaning the organisation’s digital estates. The system detects which aspects of the business’s technology are vulnerable to attack and provides software patches to address the threat.
A smaller story but a nonetheless impressive one, Hazy (formerly Anon AI and winner of “Best in Tech” at Elevator Pitch) raised $1.8 million in Seed Funding in the middle of 2018.
The business emerged from University College London about 2 years ago, with a ground-breaking AI system which can “hunt down” personal data buried away in datasets.
With the recent introduction of GDPR and the continual governmental concern and drive towards enhancing the protection of personal data, cybersecurity firms like Hazy have a promising future ahead of them.
LORCA & NCSC Cyber Accelerator
The UK government has recognised the vital role that cybersecurity will play within the UK economy over the coming decades. New technologies such as AI, quantum computing and blockchain are set to change the world whilst driving economic growth and innovation.
The inevitable rise of new technologies such as these, however, also poses new risks. One of these is the danger posed by hackers and online criminals. Indeed, if Britain’s digital economy hinges on the security of its systems then cybersecurity is arguably going to be indispensable for years to come.
In recognition of this, the government launched LORCA in June 2018 – the London Office for Rapid Cybersecurity advancement. This new initiative is designed to assist cybersecurity companies in the development of their business models.
This development should offer comfort to investors who are interested in cybersecurity startups. Initiatives such as these should help the latter refine their value proposition in order to grow into successful, profitable businesses.
The above isn’t the only initiative currently in operation, moreover. The government’s GCHQ Cyber Accelerator has also recently graduated 9 UK cybersecurity startups from its 9-month programme, which is designed to help such businesses refine their products and services in order to enhance UK national security.
Tips for investors interested in cybersecurity startups
Cybersecurity startups face many of the same opportunities and challenges as other firms when getting off the ground. That said, the examples cited above start to give an idea of the growth potential of fintech, cybersecurity and other SaaS startups.
Such firms are usually based around monthly/annual subscription models rather than one-time transactions with customers. As a result, many cybersecurity firms’ business models benefit from a higher degree of predictability and scalability compared to other startups.
Saas startups like these can be accessed anywhere from the cloud, even on mobile devices. They do not need to concern themselves with distribution, packaging or physical piracy. The software is also highly flexible, enabling cybersecurity startups to more quickly adapt to changes and threats in the market environment.
Moreover, as cybersecurity startups grow their cost per acquisition and cost per service for each customer tends to go down. This makes cash flow more predictable ad growth more secure – all reassurances for interested investors.
Finally, many cybersecurity companies offer the investor additional security through “economic moats”, which place high switching costs on the service subscriber. This gives these startups a more sustainable economic and competitive advantage once they have their foot in the door with a signed-on customer.
The above are just a handful of reasons to consider investing in SaaS companies such as cybersecurity startups. These are apart from the other tax benefits offered by such firms which qualify for EIS or SEIS status. For more information on this, please get in touch to speak with one of our specialists.