Privacy professionals have seen this headline adorn plenty of stories over the past couple of years: "Privacy tech vendor X closes Series A funding round worth X millions of dollars."
These news stories are usually the end of a long journey involving negotiations, new board members, plans to increase staff and opportunities to enhance existing tech solutions and create new ones.
Each journey starts somewhere for both sides of a funding round. For investors, they need to figure out exactly what they are looking for in the privacy tech market and identify the proper traits a vendor must exhibit to show it will be a winner in the marketplace. Tech vendors, on the other hand, must develop the best methods needed to showcase their worth to possible business partners.
Transcend CEO Ben Brook is well-versed on what needs to be done to catch the eye of investors, as his company announced it had received $25 million in Series A funding in June. Brook said Transcend worked on its offering for two years, and when the time came to raise money, he felt it was important to have a product to demo in order for investors to see exactly what they can do.
"That was the proof point for us that going into fundraising, we can show them we can actually solve this problem," Brook said last month during The Rise of Privacy Tech Virtual Summit. "Having live proof points is incredibly important, and because this is a technical problem, showing that you have customer love from engineers is super important, as well as the privacy office and privacy lawyers."
Having a working product is only one piece of the puzzle. Privitar CEO Jason du Preez said tech vendors should establish a relationship with prospective investors before fundraising actually begins. Since investors will likely become key players in the vendor's operations once the deal is done, du Preez said vendors should know as much as possible about them before they are brought on board.
"You want to understand the dynamic and the culture of the investment company," du Preez said. "They are going to join your board and be a key member of your team if you do close a round. Starting that relationship really early makes fundraising much quicker and expedites the whole process."
Investors are likely to take note of the tech vendors that put in the extra effort.
Bessemer Venture Partners Growth Investor Mary D'Onofrio described privacy as a category that is very much in its infancy, and since it is young, investors may not fully know the ins and outs of the market.
D'Onofrio said the most successful privacy tech vendors she has seen are the ones that emphasize investor education by helping them both understand the market and how they plan to set themselves apart from the field.
"In the early stages, just understanding the competitive landscape, where you differentiate, how you are going to win and being able to clearly articulate that is key," said D'Onofrio, who added vendors would benefit from understanding the interplay between privacy tech and policy, internalizing the knowledge and allowing it to manifest itself within their business.
Omidyar Network Investor Jesus Salas had a concise message for privacy tech vendors looking to court investors: Just be honest.
"Be clear about intentions and motivations and how you plan to execute on those," Salas said. "For us, it’s just as much about the innovation and viability of a business as it is about the founders and their own work to ensure privacy in their venture. We are very much looking for founders that have given some deep thought to the positive and negative externalities of their products."
D'Onofrio and Salas also shared what they are looking for in privacy tech vendors and the important trends they have identified within the market.
Salas said the vendors that have caught the eye of his investment firm are those in the identity verification space and vendors that seek to function as data exchanges for users. One trend Salas cited as noteworthy from an investment perspective is the shift from a consumer-driven market to one focusing on the enterprise.
"This could be because regulation in many parts of the world is now putting the onus for compliance on enterprises and thus businesses are now starting to see that privacy and security can be a differentiating mechanism," Salas said.
That onus is why D'Onofrio feels privacy has a particular advantage over other industries and why it has been such an appealing area for investors to explore. The EU General Data Protection Regulation, California Consumer Privacy Act and other privacy laws around the world have put the onus on companies to comply or face tough penalties.
These are consequences enterprises actively seek to avoid, and privacy technology has become a big part of their efforts to avoid the ire of regulators.
"The great thing about the privacy stack is that it differs from a lot of nascent categories that have a tough time getting budget, but the regulatory tailwinds made that budget immediate and available," D'Onofrio said. "Fortunately, you can see there is enough budget to support large companies and that’s incredibly important for me as an investor. "
Photo by Micheile Henderson on Unsplash
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