Darktrace IPO, Vectra Funding Highlight AI in Cybersecurity

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By: Mary Jander

Recent developments for companies harnessing artificial intelligence (AI) to cybersecurity show the combination is a winner.

On April 29, Vectra AI, a cybersecurity company that deploys AI to thwart hackers in enterprise networks, announced $130 million in a round of funding that brings its total raised to over $350 million to date on a post-money valuation of $1.2 billion.

Meanwhile, Darktrace, listed recently in our Futuriom 40 report, successfully went public in the U.K., scoring about $230 million on its first day of trading April 30 and bringing its valuation to about $2.3 billion. Darktrace has been a pioneer in using AI and machine learning (ML) to identify threats and anomalies on enterprise networks before they occur, then using it to eliminate them.

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Both companies exemplify the trend toward use of AI to address the monumental task of keeping pace with bad actors online — a task that has mushroomed beyond the capabilities of human operators to keep up. Even experts who continue to trust humans to lead security say reliance on AI is a welcome and often essential part of the enterprise security equation.

Vectra Funding: Will IPO Follow?

Vectra’s success supports the concept of AI-based network detection and response (NDR). Its Cognito platform deploys sensors that observe network activity, gathering metadata, logs, and telemetry, which human data scientists and security researchers then “enrich” with insights and direction based on their knowledge and ongoing threat updates. Over time, neural networking is applied to this enriched data to increase its accuracy. Cognito covers networks associated with clouds, data centers, and Internet of Things (IoT) devices.

Vectra’s funding marks a shift in its fortunes. Now a late-stage startup, the vendor received $100 million in Series E funding in January 2020 led by TCV and backed by earlier investors Khosla Ventures and Accel. The latest funding comes from Blackstone Growth (BXG), an enormous, $4.5-billion equity fund that closed in March 2021. BXG’s mission is to propel a highly “curated” group of promising startups to global success through the sizable resources of parent Blackstone Group (NYSE: BX).

The Blackstone investment is similar to what happened in May 2019, when Vectra competitor Recorded Future was acquired for $780 million by Insight Partners. In cases like this, a takeover by a private equity investor can help or hinder a company’s prospects. In the case of Recorded Future, under Insight’s ownership the company continues to claim success among enterprise customers and recently made a $52 million acquisition. If business continues to boom for Vectra, BXG’s sponsorship could lead the company on a similar path — or on track to IPO.

Darktrace Defies IPO Odds

Investors had anticipated Darktrace’s IPO for weeks. And apparently worries about a weaker potential for public trading in the U.K., where the company is based, versus the U.S. were unfounded. Some were also concerned about ties of some Darktrace associates to the ill-fated sale of software company Autonomy for $11 billion HP in 2011. Reportedly, the scuttlebutt led to some investors demanding discounts on the IPO.

There’s every reason to hope that Darktrace’s success will continue, despite negative gossip. Founded in 2013 by mathematicians and British intelligence experts, Darktrace models its technology on the idea of an organic immune system that morphs to address conditions before disaster strikes. The model works in particular on insider threats, which the vendor claims account for 74% of the cybersecurity incidents encountered by enterprises. The tack has garnered Darktrace a claimed 4,700 customers across numerous vertical markets, with heavy representation from financial services.

Still, competition is only increasing for Darktrace. Besides other startups such as Vectra AI, the company faces a slew of incumbents, including Crowdstrike (CRWD) and Fortinet (FTNT). The latter has woven AI into the fabric of its hardware-based firewall.

Both Vectra AI and Darktrace, however, highlight the momentum behind AI as an essential element of cybersecurity, particularly in the era of multi-cloud and autonomous networking environments. The question isn’t whether companies in this space will continue to be richly funded or taken public, but which ones will be next.