The UK only has a few start-ups with billion dollar valuations. Darktrace, a $1.65bn cyber security start-up conceived of by Mike Lynch, and backed by his investment vehicle Invoke Capital, is one of them.
Lynch needs little introduction but to recap briefly, Darktrace sells cyber security software to small and big businesses by shipping out computer servers that customers can plug into their networks. Its software sits in those networks, monitoring traffic as it moves around a business and using machine learning to try and spot behaviour that looks abnormal. A jazzy interface (pictured above) shows the IT department what's going on.
But who owns Darktrace?
Much ink has been spilled on Darktrace’s relationship with Lynch and Invoke Capital. Lynch played a formative role in setting up and running Darktrace as a board director until he stepped down last November after being charged in the US with 14 counts of conspiracy and fraud over the sale of his earlier business Autonomy to HP (he rejects all the charges). Invoke Capital owns 42 per cent of Darktrace’s shares, according to its most recent shareholder register, but this was published almost a year ago, last June.
The next biggest shareholders according to that somewhat stale filing are private equity and venture firms Summit Partners, KKR and Insight Venture Partners. These companies have been invested in Darktrace through various funds since at least 2016 and 2017. After these, Darktrace’s shareholders include some smaller early-stage funds, early employees and founders and members of its executive team.
However as of December last year, Darktrace has also welcomed a new investor, according to sources. This is Balderton Capital, one of London’s highly-regarded venture businesses and a co-investor with Invoke Capital in Swiss genomics start-up Sophia Genetics. The firm bought between $5m and $10m of shares in Darktrace through a secondary share sale that took place in December, sources told the FT. Another shareholder, Talis Capital, also increased its stake in Darktrace by buying secondary shares worth around $10m, they added.
Talis declined to comment.
“We are happy to confirm that Darktrace is now a portfolio company of Balderton, invested through our liquidity 1 fund,” said Daniel Waterhouse, general partner.
It is not, however, clear who sold shares to Balderton and Talis, though this will become public eventually through the UK’s filing system for private companies. It is common for early investors to sell shares in start-ups, especially if the value of those shares has increased with time. It is also common for companies to buy small numbers of secondary shares if they believe a firm might be fundraising or ready to sell at a higher valuation - or simply think it is a good bet.
However it is worth pausing for a moment on Invoke Capital, which is not a standard venture fund. The fund works on a drawdown basis and does not charge its investors fees. A person close to the fund told the FT in December that “it's mostly his [Mike Lynch’s] money". Asked if Invoke Capital would face problems if Mike Lynch was convicted in the US, the person added: "yes it’ll be the end of the fund if he has to give up that money”. The US Department of Justice has also sought to force Lynch to forfeit $815m of gains from selling Autonomy. An Invoke Capital spokesperson responded to questions about its financing in December: “Invoke Capital is self-funded and does not rely on Dr Lynch’s financing.”
Invoke Capital declined to comment for this article.
Darktrace told the FT Invoke Capital has sold less than 1 per cent of its shares for liquidity purposes but declined to specify when it did so. It added there are “always third parties interested in making investment, but there is no formal [fundraising] process at the moment" and did not comment on a possible sale of the business. "We are very pleased that Balderton invested," a spokesperson said.
Inside Darktrace, the UK’s $1.65bn cyber security start-up - FT
Mike Lynch boosted by star witness at Autonomy trial - FT
Defences around Mike Lynch show signs of cracking after US charges - FT
Sophia Genetics raises $77m after Mike Lynch quits board - FT
Why isn’t Mike Lynch spending more of his “$1bn” technology fund? - FT Alphaville