IPOs 2021: Analysis of Darktrace’s Cybersprint Acquisition

The global cyber security market is expected to grow at 12% CAGR to reach $366.1 billion by 2028. The Russian attacks on Ukraine are expected to have accelerated this growth. In the 48 hours following the invasion, it is believed that suspected Russian-sourced cyber-attacks increased by over 800%. Last month, the US Cybersecurity and Infrastructure Security Agency (CISA), the FBI, the Department of Homeland Security, and the European Central Bank (ECB) warned of the risk of Russian cyber attacks as well. Cyber security players across the globe are benefiting from these growing risks.

Darktrace’s Offerings

Cambridge-based Darktrace was founded in 2013 by a group of ex-spies from GCHQ, mathematicians, and artificial intelligence experts. Its founders include Dave Palmer, Emily Orton, Jack Stockdale, Nicole Eagan, and Poppy Gustafsson. The company helps reduce the disruption caused by cyber-threats across digital infrastructures. Darktrace AI autonomously learns ‘digital DNA’ to help organizations build resilience against cyber attacks. It was a pioneer in developing and commercializing AI for cyber security.

Created with a mission to transform the ability of organizations to defend their most critical assets, Darktrace has risen to become a world-leading provider of AI for the enterprise, with the first at-scale in-the-enterprise deployment of AI in cyber security. The platform uses machine learning and AI algorithms to detect and respond to cyber threats across diverse digital estates. Its self-learning technology is easy to set up. It quickly identifies threats that have breached the perimeter, including threats exploiting previously unknown vulnerabilities and insider threats. It has defended critical infrastructure worldwide since its inception and defends organizations across all 16 CISA-designated sectors. Its products have helped it grow its reach to over 110 countries globally.

Darktrace’s Financials

Recently, Darktrace announced its H1 results and reported revenues of $192.6 million, up 52.3%. It ended the six months with an EPS of $0.01.

Among key metrics, its customer base grew 40% to 6,531, and it grew its ARR by 45.5% over the year. Customers with ARR of less than $100,000 grew 51% over the year while those with ARR of more than $100,000 grew 49%. Overall net ARR recorded a growth of 48.7% to 69,925.

It expects to end the current year with a growth of 38.5%-40% over the year driven by the increased demand for cyber security products following the Russia-Ukraine conflict.

Darktrace’s Acquisition

During the quarter, Darktrace announced its acquisition of Netherlands-based Cybersprint for an estimated €47.5 million (~$53.7 million). Cybersprint is a leading attack surface management company that provides continuous, real-time insights from an outside-in perspective to eliminate blind spots and detect risks.  The acquisition will allow Darktrace to use Cybersprint’s attack surface management data to enhance its Darktrace Detect and Respond products with external vulnerability data and accelerate its entry into areas such as proactive AI cyber security. The capability will be introduced as a new module in the Prevent product family, feeding organization-specific web data to Darktrace’s Attack Path Modeling technology.

Additionally, it will help Darktrace expand its footprint in the European market with a second R&D center in The Hague. Prior to its acquisition, Cybersprint raised €2.7 million (~$3 million) in two rounds of funding led by KPN Ventures, Vortex Capital Partners, InnovationQuarter, Arthur van der Wees, and Lennard Zwart. Cybersprint did not disclose its financials prior to the acquisition.

Darktrace went public in April 2021, when it raised £165.1 million (~$200 million) at a valuation of £1.7 billion (~$2.2 billion). Prior to going public, it had raised $230.5 million in nine rounds of funding led by Kohlberg Kravis Roberts, Hoxton Ventures, Vitruvian Partners, TenEleven Ventures, Future Fifty, Balderton Capital, and Insight Partners. Its most recent round of funding was held in September 2018 where it raised $50 million at an undisclosed valuation.

Its stock is currently trading at £450.75 with a market capitalization of £3.15 billion. The Russian attacks have helped fuel the demand for cybersecurity products across the globe. Darktrace’s competitors in the US, such as security services provider Palo Alto Networks and CrowdStrike are also seeing their stock soar.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Gerd Altmann from Pixabay

This segment is a part in the series : IPOs 2021