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IPO: Cybersecurity Startup Darktrace Debuts On UK Markets

Darktrace logo

A major cybersecurity startup from the UK has held an initial public offering (IPO) and debuted to positive investor fanfare on the domestic public markets. That startup is Darktrace, a fast-growing cybersecurity startup founded by a team of mathematicians in collaboration with British intelligence agencies in 2013.

  • Darktrace sells cyber-defense software that's claimed to harness artificial intelligence in spotting and managing cyber threats. It listed on the London Stock Exchange under the symbol "DARK".

By the numbers:

  • Darktrace debuted to positive investor fanfare that saw its shares soar by 40% on its first day of trading. It raised £143 million ($198m) from the public float at a valuation of £1.7 billion ($2.3bn) which soared to almost £2.4 billion ($3.3bn) on its debut trading day.
  • Darktrace's IPO prospectus reports $199 million in revenue in its most recent fiscal year ending June 30, 2020. This was up from $137 million in the previous year, 2019, and $79 million in the year before that.
  • Darktrace hasn't reported annual profits for the past consecutive three years, reporting respective net losses of $29 million, $35 million, and $42 million in 2020, 2019, and 2018. From the numbers, it's though apparent that the company has seen its revenue rise and losses fall for the past consecutive years.

Controversial history:

  • Darktrace has an interesting history especially from its beginnings that involves intelligence agencies, skilled mathematicians, and a billionaire tech entrepreneur accused of scheming one of Britain's biggest corporate frauds.
  • Darktrace was founded by a group of mathematicians and intelligence experts working as a team largely put together by Michael Lynch, an entrepreneur who founded and sold a major British software company named Autonomy to HP for $11 billion. It wasn't all good for Lynch though, as HP accused him of fraud while at Autonomy shortly after buying the company.
Michael Lynch
Michael Lynch

  • Just a year after buying Autonomy for $11 billion, HP wrote down the value of its purchase by $8.8 billion, stating it had uncovered serious accounting improprieties at the company.
  • HP accused Lynch along with his executive team of inflating and reporting bogus sales figures at Autonomy in order to pump up the price HP had to pay for the company. At first, a civil trial began, before the US Justice Department moved to formally indict Lynch for fraud and seek his extradition from the UK to the US to face charges. Lynch is currently battling the extradition request in court.
  • One of Lynch's top lieutenants at Autonomy, precisely CFO Sushovan Hussain, was convicted of fraud in connection to the HP case and sentenced to five years in prison in the US in 2019.
  • It's important to note that Lynch is Darktrace's biggest shareholder with a 16.2% stake held by him and his wife at the time of its floatation. His stake is far bigger than that of Darktrace's other co-founders, for example, Co-CEO Poppy Gustafsson who makes do with a 0.4% stake in the company.
  • Interestingly, that Hussain serving a prison term in the US is Darktrace's second-biggest shareholder after Lynch with a 2.8% stake worth over $100 million. It's obvious that the connection really runs deep between Darktrace and Lynch and co., even though the company has sought to distance itself from that relationship ever since Lynch's troubles came to light.
  • Also to note, Darktrace has been accused of having aggressive sales tactics like the type adopted at Lynch's Autonomy before its sale to HP.

Our take: Despite its controversies, Darktrace has managed to position itself as one of Britain's hottest cybersecurity startups as proven by a successful IPO. It's one of Britain's landmark tech listings this year after food delivery startup Deliveroo.

To investors, we'll advise you to watch out tentatively even as Darktrace reports enticing figures. But leaving out our take, Darktrace's figures taken at face value looks very strong for a relatively young startup in the cybersecurity industry.

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