Stytch Raises $30M from Ex-Plaid Employees - Passwordless Authentication

The Growing Need for Passwordless Authentication

Managing passwords presents a significant challenge for many individuals. Numerous companies offer solutions to assist with password management, while others are actively working to eliminate passwords altogether.

Stytch Secures $30 Million in Series A Funding

Stytch, a company focused on passwordless authentication, has recently secured $30 million in a Series A funding round, coinciding with its official launch out of beta. This funding round garnered attention due to several factors.

Notably, Stytch had previously announced a $6.25 million seed round led by Benchmark, with participation from Index Ventures and angel investors like William Hockey, co-founder of Plaid. This initial funding was actually raised last summer, around the time of Stytch’s founding, but was only publicly disclosed this year.

Additional angel investors include Dylan Field, co-founder and CEO of Figma, Mahmoud Abdelkader, co-founder of Very Good Security, Elad Gil, a startup advisor, and Amber Feng, an early Stripe employee and co-founder of Cocoon.

Investment Details and Company Origins

Thrive Capital spearheaded the Series A round, with further contributions from Coatue Management and existing investors Benchmark and Index. While the company has not disclosed its valuation, sources estimate it to be “north of $200 million.”

Stytch was founded by Reed McGinley-Stempel (CEO) and Julianna Lamb (CTO), both former employees of Plaid. They previously developed user authentication features utilized by millions of users connecting their bank accounts to applications such as Venmo, Coinbase, and Robinhood.

The company’s foundation rests on the belief that traditional passwords are inherently insecure and create vulnerabilities for companies, increasing the risk of hacking and account takeover.

Addressing the Complexities of Authentication

Lamb explains that their experience at Plaid highlighted the difficulties involved in building sign-up and login processes.

“Building these flows in-house is not only complex but also resource-intensive and prone to errors,” she stated to TechCrunch. “Furthermore, the fundamental components used for authentication across companies often suffer from security flaws and hinder user conversion rates. It became clear to us that while the web has evolved significantly over the decades, authentication remains stuck in the past.”

Stytch’s Solution: Simplified Passwordless Authentication

Stytch aims to streamline authentication by providing developers and users with the necessary “tools and infrastructure to integrate passwordless authentication methods into contemporary applications.”

The team is developing “simple” APIs and SDKs (software development kits) that, according to the founders, enable companies to enhance user onboarding and retention by removing passwords, improving security, and reducing engineering efforts.

Early Adoption and Platform Flexibility

During its first year, Stytch’s beta product was adopted by over 350 developers, who integrated passwordless features like email magic links, SMS and WhatsApp passcodes, and one-click user invitations into their onboarding and login flows. This week, Stytch officially exited beta, making all features publicly available alongside the funding announcement.

Lamb emphasized the importance of flexibility for developers. “Surprisingly, even the API-first approach attracted a number of Fortune 500 companies, primarily due to the platform’s ease of setup, which took them just an hour compared to the months often required by other providers.”

The Risks of Password Reuse and Forgotten Passwords

A Google study revealed that approximately 65% of users reuse passwords across multiple accounts, creating significant security risks and potential breach liabilities. Moreover, many individuals struggle to remember passwords, and the password reset process can be so frustrating that users abandon accounts altogether.

This frustration can negatively impact businesses, particularly those relying on e-commerce, leading to lost customers.

Thrive Capital’s Perspective

Gaurav Ahuja of Thrive Capital, who will join Stytch’s board, believes the product is specifically designed to improve sign-up conversion and user retention, with its customizable front-end tools enabling companies to get started “quickly.”

He noted that his firm spoke with numerous developers who were “impressed with the company’s best-in-class API documentation and rapid implementation speed.”

“In recent years, we’ve observed that most authentication systems are both outdated and pose a security risk to users,” Ahuja explained to TechCrunch via email. “Stytch is directly addressing both of these issues.”

Future Plans and Expanding Authentication Options

The newly acquired capital will be used to introduce additional authentication methods, including biometrics, WebAuthn, OAuth logins, QR codes, and push notification login. The company also intends to launch new user infrastructure features and develop session management and advanced fraud detection solutions. Stytch plans to hire 20 additional employees by the end of the year.

Stytch is not alone in its pursuit of passwordless authentication. Transmit Security, based in Boston, raised $543 million in a Series A round in June, considered the largest Series A investment in cybersecurity history. Microsoft has announced plans to eliminate passwords from Windows 10, and Apple recently previewed Passkeys in iCloud Keychain, a passwordless authentication method powered by WebAuth.