Privacy isn’t dead, as many would have you believe. New regulations, stricter cross-border data transfer rules and increasing calls for data sovereignty have helped the privacy startup space grow thanks to an uptick in investor support.
This is how we got here, and where investors are spending.
The rise of privacy tech
With strict privacy laws such as GDPR and CCPA already listing big-ticket penalties — and a growing number of countries following suit — businesses have little option but to comply. It’s not just bigger, established businesses offering privacy and compliance tech; brand-new startups are filling in the gaps in this emerging and growing space.
“For the last decade, privacy tech was trumpeted as one of the next ‘big things’ for investors, but never delivered. Startup business models were too academic, complex and did not appeal to VCs, or crucially, consumers were used to getting free web services,” Gilbert Hill, chief executive at Tapmydata, told Extra Crunch.
Some privacy companies — including privacy hardware companies — are chasing profits and less focused on hustling for outside investment.
Today, privacy is big business. Crunchbase lists 207 privacy startups (as of April 2021) that have together raised more than $3.5 billion over hundreds of individual rounds of funding. The number of privacy companies rockets if you take into account enterprise privacy players. Crunchbase currently has 809 listed under the wider “privacy” category.
The latest Privacy Tech Vendor Report 2021 names 356 companies exclusively dealing in enterprise privacy technology solutions, up from 304 companies a year earlier.
“Since 2017, the privacy landscape underwent a metamorphosis,” the report said. “The emergence of the California Consumer Privacy Act, Brazilian General Data Protection Law and other privacy laws around the world have forced organizations to adhere to a new array of compliance requirements, and in response, the demand for privacy tech grew exponentially.”
That also presents an opportunity for investors.
Increasing investments
Privacy tech was catching the attention of investors even before the recent wave of new privacy laws came into effect. The sector amassed nearly $10 billion in investment in 2019, according to Crunchbase, compared to just $1.7 billion in 2010. Investments remained active in 2020, despite the pandemic.
Case in point: In December, enterprise privacy and compliance firm OneTrust announced a $300 million Series C funding. The deal valued the 4-year-old privacy tech firm at $5.1 billion, making it one of the first modern privacy unicorns. Three months later, it extended its Series C funding, with SoftBank Vision Fund 2 and Franklin Templeton pumping in another $210 million.
“As more data is created and shared over the internet, consumer privacy and trust have become critical issues for companies globally,” Ramzi Ramsey, partner at SoftBank Investment Advisers, said at the time. OneTrust has made seven acquisitions in recent years.
Other notable investment rounds in privacy tech in 2020 include:
- Data intelligence platform BigID hit unicorn status in 2020 after securing two rounds of funding worth $50 million and $70 million.
- AvePoint raised $200 million from TPG Sixth Street Partners, with participation from both new and existing investors, including Goldman Sachs. AvePoint provides data governance, protection and migration solutions for Office 365 and SharePoint.
- London-based startup Privitar in April 2020 secured an $80 million Series C funding led by Warburg Pincus, along with Accel, Partech, IQ Capital, Salesforce Ventures and ABN Amro Ventures. Two months later, HSBC put in $7 million in additional investment.
- AI-powered data privacy and security service Securiti received an undisclosed investment from Cisco Investments this month. General Catalyst Mayfield pumped in $50 million in Series B financing in January 2020.
Many other companies have raised relatively smaller investments. Data privacy management software WireWheel got $20 million in a Series B funding round led by cybersecurity venture fund ForgePoint Capital, along with existing investors New Enterprise Associates, Revolution’s Rise of the Rest Fund, PSP Growth, Grotech and Sands Capital Ventures.
Self-service privacy compliance platform Ethyca received $13.5 million in June 2020, led by IA Ventures and joined by a number of other investors.
But some privacy companies — including privacy hardware companies — are chasing profits and less focused on hustling for outside investment.
Private internet search alternative DuckDuckGo, whose privacy-focused search has emerged as a small but notable competitor for Google, has raised only two rounds of funding despite its rising popularity.
End-to-end encrypted messaging app Signal takes a different approach by relying on donations. WhatsApp co-founder Brian Acton left WhatsApp and started the nonprofit Signal Foundation in February 2018 with a $50 million loan from his own pocket.
U.S.-based designer and creator Scott Urban launched Reflectacles to sell eyewear that prevents surveillance cameras from identifying the users. He said he turned down investors. “I did a Kickstarter campaign to raise money first in 2016. Before I did that, I talked to investors in Chicago. To be nice; I didn’t like them,” he told Extra Crunch.
But consumer privacy tech often bears the brunt of retaliation by governments, whose surveillance and censorship systems stand to lose the most. Egypt blocked access to Signal in December 2016, Iran blocked the app in January 2018, and China banned the app in March 2021.
“There are no laws on banning sunglasses anywhere in the world at this point,” Urban joked.
What lies ahead
The privacy industry is expected to balloon over the next decade as businesses realize the cost-benefits and groundwork that privacy technology has to offer.
One recent Cisco study said: “When asked whether privacy investment was yielding benefits (such as greater agility and innovation, gaining a competitive advantage, achieving operational efficiency, etc.), 75% of all respondents identified two or more of these benefits, and nearly all companies (97%) identified at least one benefit.”
The privacy management market, which includes companies like IBM, BigID and OneTrust, was valued at $450 million in 2018. By 2025, it’s expected to increase by more than sevenfold to $3.2 billion.