Insurance giant IAG has taken part in a $17 million raising for UpGuard, a homegrown cyber security business now based in San Francisco.
The $14.7 billion ASX-listed insurer joined venture capital firms Square Peg Capital and Pelion Capital Partners in the Series B funding round, which will be used to help the business grow, including doubling staff numbers to about 120 by February.
A debacle surrounding the 2016 census, currently embarrassing technology giant IBM and the Australian government, highlights the massive market opportunity for the fast-growing business.
UpGuard’s proprietary technology is a system for identifying the weak spots in a company’s information technology ecosystem and ranking the organisation’s overall level of risk. The tool is marketed as a Cybersecurity Threat Assessment Rating (CSTAR). It aims to become the cyber risk benchmark for companies, insurance providers and consumers.
“CSTAR helps companies track the types of misconfigurations, or configuration oversights, that the Census site suffered,” UpGuard co-founder and co-chief executive Alan Sharp-Paul said.
“If the issue was a DDOS attack, and there is some debate over this at present, then it was as a result of not having adequate DDOS protection in place.”
Over 80 per cent of all data breaches and outages are ultimately the result of bad configurations like these, he said.
Mr Sharp-Paul and his joint chief executive Mike Baukes co-founded UpGuard in Sydney in January 2012, when the company began life as ScriptRock and participated in start-up accelerator program Startmate.
The company now has more than 2000 customers worldwide; including human resources platforms Insight Global and ADP Payroll, and tele-conferencing providers PGI and Cisco Systems. UpGuard’s biggest client is airline systems manager Amadeus.
UpGuard does not publicly disclose its financial records but boasts of being fast growing and profitable, a highly sought-after combination in the technology start-up space where many companies burn cash for years before turning a profit.
“We have a goal to increase both revenue and profit by 400 per cent annually, and this year we hit that target in April,” Mr Baukes said.
He said the latest $17 million capital valued the business as “somewhere sub $100 million”.
Why IAG wants in
IAG Ventures boss Ron Arnold said the insurance giant had decided to back UpGuard because it was excited about possible future applications for its technology within its own business.
“CSTAR has the potential to help insurance companies like IAG better assess, and therefore price, a customer’s cyber risk,” Mr Arnold said.
Mr Arnold said IAG would work with UpGuard to help the company refine its methodology, and to test their product’s ability to predict cyber risk.
UpGuard is the second start-up IAG has invested in after taking a stake in budget planner PocketBook earlier this year. The insurer launched its “venturing” division last year.
Local venture fund Square Peg Capital provided seed capital to UpGuard in 2012 and has backed it through four funding rounds.
“This is the first time we have invested in a company four times. Mike and Alan are a pretty exceptional leadership team,” Square Peg co-founder Paul Bassat said.
IPO on the horizon
Mr Sharp-Paul and Mr Baukes told The Australian Financial Review that a sharemarket listing was likely “at some point” in the future.
“An IPO is something we are constantly thinking about but there is still lots to do first … I don’t know when it would be,” Mr Baukes said.
When the company is ready to float it will weigh the merits of doing so in Australia or the US.
“Even though the business is now based in Silicon Valley we sort of have a natural inclination to want to list in Australia,” Mr Baukes said.
Pelion Venture Partners, a Utah venture capital fund, was another existing backer that supported UpGuard’s latest capital raising.
Pelion’s Chris Cooper talked up the competitive edge in UpGuard’s CSTAR technology.
“The ability to assess both external and internal risk factors is a huge step forward in understanding the complete security posture of a business,” Mr Cooper said.
The Australian pair were recently profiled by Forbes Magazine in a series on “thought leaders” changing the US business landscape.
Read the article in Financial Review.