Business Insurance

Darktrace IPO - Everything You Need To Know

Darktrace is expected to float on the London Stock Exchange in the coming weeks. This short piece covers who they are, what they do, and how former HP Autonomy founder Mike Lynch could impact the success or failure of their IPO.

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After Deliveroo’s disappointing IPO at the end of March, British cybersecurity firm Darktrace will be the next business to test the London market’s appetite for tech. Here’s everything you need to know about the upcoming flotation, including what exactly Darktrace does and how HP Autonomy founder Mike Lynch, currently on trial for fraud, comes into things.

Who are Darktrace?

Darktrace are an AI-focused cyber security company, specialising in utilizing AI and Machine Learning to detect and repel cyber attacks across all types of digital environments. Their Enterprise Immune System builds a “pattern of life” for your company’s internal networks, devices and users, allowing it to quickly identify whenever anything ‘abnormal’ occurs, and alert system administrators (or even remove the threat itself, using its Antigena response technology).

They have over 1,500 employees across 40+ offices worldwide, with key offices in their home of Cambridge, San Francisco, London and Singapore.

What do Darktrace do?

Darktrace use artificial intelligence (AI) and unsupervised machine learning (ML) to detect cyber-threats more quickly and efficiently than traditional cybersecurity technology. Their technology works by continuously monitoring your networks, devices and users to create what they call a “pattern of life”, allowing the machine learning algorithm to continuously improve its understanding of what ‘normal’ activity looks like.

As it continues to develop a concept of ‘normal’, the algorithm can more accurately diagnose and detect potential cyber-threats, targeting anomalies—and since 2016, even being able to protect from the cyber-threats itself, with Darktrace’s Antigena systems.

Darktrace operates across most major SaaS apps and cloud-based services, including Microsoft 365, Zoom, Slack and many more, and is able to integrate with a wide number of the world’s most popular anti-viruses, firewalls and other security measures.

Darktrace Floating on the London Stock Exchange

Darktrace confirmed their Intention to Float on the London Stock Exchange in an announcement on 12 April 2021, with shares currently on track for admission in early May 2021.

It’s an interesting time to enter the LSE, given that Deliveroo’s tricky flotation still on everyone’s mind, and expectations from top market analysts and reporters are mixed.

Some have pointed out that Darktrace’s valuation is considerably more cautious, between $3 billion to $4 billion, and that their current sales and marketing outlay as a percentage of revenue is following a similar trajectory to best-in-class Clowdstrike over in California, giving investors optimism for profitability in the not-so-distant future. Darktrace’s future R&D costs will also be considerably less than other competitors, as their machine learning algorithms should take care of a lot of the heavy lifting when it comes to their main product.

Others view uncertainty over Brexit and question marks around the market’s taste for tech IPO’s (post-Deliveroo) as reasons for investors to exercise caution—and the elephant in the room, their links to disgraced former investor Mike Lynch, currently facing extradition to the United States on 17 counts of securities and wire fraud.

How does Mike Lynch affect the Darktrace IPO?

Mike Lynch founded venture capital firm Invoke Capital, who were the initial investor in Darktrace shortly after their founding in 2013. Lynch is currently on trial for civil charges in London, where HP is suing him claiming he fraudulently inflated the value of his company Autonomy before sale, and is also wanted by the US Department of Justice on criminal charges.

Darktrace have already felt the impact of the charges on their IPO, with Goldman Sachs declining to take on a role during the IPO due to concerns about the potential ramifications of the Lynch trial.

Final Comment

The coming weeks should be very interesting for both Darktrace and the wider LSE. A strong flotation could help to reduce concerns about the viability of London’s financial market in a post-Brexit universe, but another weak showing for a jewel of Britain’s (previously) flourishing tech market could lead potential founders and investors to consider setting up elsewhere.

Luke Masters

Prior to NimbleFins, Luke studied economics at Brunel University and worked at FreshMinds, Investigo and BMW. His work in data analytics, pricing, strategy and business development helped him write business insurance content to support SMEs at NimbleFins. He now works at DataPOWA, a sports & entertainment data analytics company. Read more on LinkedIn.