Steeped in spycraft, cybersecurity firm Darktrace rockets on London debut

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By Paul Sandle

LONDON (Reuters) -Darktrace, a cybersecurity company advised by former MI5 and CIA spymasters, leapt more than 40% on its market debut on Friday, delivering a boost to the London market after the spectacular flop of Deliveroo last month.

The company was priced at 250 pence in the initial public offering, giving it a valuation of just over half the original aim of $4 billion. But it rocketed to 352 pence when trading started, well above the 220-280 pence range set by its bankers when its roadshow began on Monday.

Darktrace uses AI to understand IT networks and then detect attacks by identifying unusual behaviour from within. Its advisory board includes a former director general of the British security service, Jonathan Evans, an ex-CIA chief information officer, Alan Wade, and former UK interior minister Amber Rudd.

“Today is just the beginning,” Chief Executive Poppy Gustafsson said.

The loss-making company, which says it’s presently focused on growth rather than profits, was founded in the English university city of Cambridge in 2013. It is backed by entrepreneur Michael Lynch, who was on its board until 2018 and is still an adviser. He and his wife own stakes worth a total of 440 million pounds after the share debut.

Lynch is fighting a U.S. extradition request to face fraud charges related to the sale of Autonomy, a software company he founded and led, to American tech firm Hewlett-Packard.

He is also waiting for the verdict of a multi-billion dollar civil claim by HP (NYSE:HPQ) at London’s High Court.

Darktrace detailed the risks related to Lynch in its registration documents, including potential liability in relation to allegations of money laundering made by U.S. prosecutors, although the company said the risk of the latter was low.

Lynch denies all the allegations in the cases. He declined to comment on Darktrace.


Darktrace’s Gustafsson, who like many of the senior management team previously worked at Autonomy, said investor sentiment was not affected by the Lynch association.

“Ultimately whilst Mike is a visionary technologists and was an early investor in Darktrace, he’s not involved in the day to day running of the business,” she told Reuters this month.

The Lynch connection was, though, enough to deter top-tier U.S. banks from pitching for roles on the IPO, sources have previously told Reuters. UBS was originally appointed as a global coordinator but then stepped down over compliance concerns related to the Autonomy saga, another separate source confirmed to Reuters.

UBS did not respond to a request for comment, while Gustafsson said UBS had their own issues, without elaborating.

Such big bank reticence opened the field for lesser-known names.

Jefferies (NYSE:JEF), Berenberg and KKR Capital Markets, none of which has ever topped equity capital markets (ECM) league tables, were joint-global coordinators.

Jefferies placed ninth in Refinitiv’s first-quarter ECM league tables while Berenberg and KKR Capital Markets didn’t make it into the top 15.

Yet, they succeeded in winning over investors and restoring confidence in London after Deliveroo’s flop in an IPO that involved bulge bracket banks such as Goldman Sachs (NYSE:GS).


CMC Markets chief market analyst Michael Hewson said Darktrace’s launch was a welcome boost for the London market.

“Given the sharp boost in initial trading there will inevitably be some criticism that the listing was priced too low,” he said. “However given what happened with Deliveroo maybe expectations were adjusted lower by a little too much.”

Darktrace’s advanced technology is used by more than 4,700 companies and organisations, including intelligence services.

The tech company, whose revenue rose from $79.4 million to $199.1 million between 2018 and 2020 but is yet to make a profit, offered 66 million shares in the IPO, valued at 165 million pounds and representing 9.6% of the capital.

It raised gross proceeds of about 143.4 million pounds by selling new shares, excluding any over-allotment option, to accelerate product development and strengthen its balance sheet.

Other investors in the company included Talis Capital, Hoxton Ventures, Summit Partners, KKR, TenEleven Ventures, Insight Partners, Vitruvian and Balderton Capital.

($1 = 0.7177 pounds)


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