who’s funding privacy tech?

The Resilience of Privacy in a Data-Driven World

Contrary to popular belief, privacy is not a defunct concept. Recent developments, including the implementation of new regulations and more stringent rules governing international data transfers, are contributing to a resurgence of interest in privacy-focused solutions.

Increased advocacy for data sovereignty is also playing a significant role. These factors have collectively spurred growth within the privacy startup ecosystem, attracting greater levels of investor backing.

Factors Driving Growth in Privacy Startups

The current landscape reflects a shift in how data is perceived and managed. Growing concerns about data security and individual rights are fueling demand for privacy-enhancing technologies.

Investor confidence is rising as a direct result of this increased demand. This is evidenced by the growing financial support directed towards companies innovating in the privacy space.

Areas of Investor Focus

• Cross-border Data Transfer Solutions: Companies facilitating compliant data movement between regions are attracting significant investment.
• Data Sovereignty Tools: Startups enabling organizations to maintain control over their data within specific geographic boundaries are gaining traction.
• Privacy-Enhancing Technologies (PETs): Investment is flowing into technologies like differential privacy, homomorphic encryption, and secure multi-party computation.

The evolution of privacy regulations, such as GDPR and CCPA, has created a need for specialized tools and services. Startups are responding by developing innovative solutions to address these compliance challenges.

Ultimately, the increased investment in privacy startups signals a growing recognition of privacy as a fundamental right and a valuable business opportunity.

The Expanding Landscape of Privacy Technology

Increasingly stringent privacy regulations, such as the GDPR and CCPA, now carry substantial financial penalties. With more nations enacting similar legislation, organizations are compelled to achieve compliance. This isn't limited to large corporations; new companies are actively developing solutions within this rapidly evolving sector.

Gilbert Hill, CEO of Tapmydata, explained to Extra Crunch that for a long period, privacy technology was predicted to be a significant investment opportunity, but failed to materialize. Early startup models were often overly theoretical and intricate, lacking appeal to venture capitalists or general consumers accustomed to complimentary online services.

Currently, data privacy represents a substantial commercial market. As of April 2021, Crunchbase identifies 207 startups focused on privacy, collectively securing over $3.5 billion through numerous funding rounds. The total number of privacy-focused companies increases significantly when including those serving enterprise clients; Crunchbase lists 809 entities within the broader “privacy” category.

The recent Privacy Tech Vendor Report 2021 identifies 356 companies specializing in enterprise privacy technology solutions, an increase from 304 the previous year.

According to the report, a significant shift occurred in the privacy environment starting in 2017. The introduction of laws like the California Consumer Privacy Act and the Brazilian General Data Protection Law, alongside global privacy legislation, has necessitated organizational adherence to new compliance standards. Consequently, the demand for privacy technology has grown at an accelerated rate.

This growth also creates a favorable environment for investment opportunities.

Growth in Privacy Tech Investment

Even prior to the implementation of recent privacy regulations, the realm of privacy technology was garnering increased attention from investors. According to data from Crunchbase, the sector experienced a substantial rise in funding, reaching almost $10 billion in 2019, a significant increase from the $1.7 billion recorded in 2010.

Investment activity continued at a strong pace throughout 2020, despite the challenges presented by the global pandemic.

For example, OneTrust, a firm specializing in enterprise privacy and compliance, announced a $300 million Series C funding round in December. This valuation placed the four-year-old privacy technology company at $5.1 billion, establishing it as one of the first prominent "privacy unicorns." Further bolstering its financial position, OneTrust secured an additional $210 million in funding three months later, with contributions from SoftBank Vision Fund 2 and Franklin Templeton.

Ramzi Ramsey, a partner at SoftBank Investment Advisers, commented at the time that the increasing creation and sharing of data online has made consumer privacy and trust paramount concerns for businesses worldwide.

OneTrust has strategically expanded its capabilities through seven acquisitions in recent years.

Several other noteworthy investment rounds in the privacy technology space during 2020 included:

• BigID, a data intelligence platform, achieved unicorn status in 2020 following two funding rounds totaling $50 million and $70 million.

• AvePoint secured $200 million from TPG Sixth Street Partners, with participation from both existing and new investors, including Goldman Sachs. AvePoint delivers solutions for data governance, protection, and migration related to Office 365 and SharePoint.

• Privitar, a London-based startup, raised $80 million in a Series C funding round in April 2020, led by Warburg Pincus, alongside Accel, Partech, IQ Capital, Salesforce Ventures, and ABN Amro Ventures. HSBC subsequently invested an additional $7 million two months later.

• Securiti, an AI-powered data privacy and security service, received an undisclosed investment from Cisco Investments. Earlier in January 2020, the company secured $50 million in Series B financing from General Catalyst Mayfield.

Numerous other companies also received investments, albeit of smaller amounts. WireWheel, a data privacy management software provider, obtained $20 million in a Series B funding round spearheaded by ForgePoint Capital, alongside existing investors like New Enterprise Associates and Revolution’s Rise of the Rest Fund.

Ethyca, a self-service privacy compliance platform, secured $13.5 million in June 2020, with IA Ventures leading the investment.

However, certain privacy-focused companies, particularly those in the privacy hardware sector, are prioritizing revenue generation over actively seeking external investment.

DuckDuckGo, a private internet search alternative that has emerged as a competitor to Google, has only completed two funding rounds despite its growing user base.

Signal, an end-to-end encrypted messaging application, employs a different funding model, relying on donations from users. Brian Acton, a co-founder of WhatsApp, established the nonprofit Signal Foundation in February 2018, providing an initial $50 million loan from his personal funds.

Scott Urban, a U.S.-based designer, launched Reflectacles, eyewear designed to prevent identification by surveillance cameras. He opted to decline investment offers, stating he initially funded the project through a Kickstarter campaign in 2016 and was not impressed with potential investors he met in Chicago.

Consumer privacy technologies frequently encounter resistance from governments, whose surveillance and censorship capabilities are potentially threatened. Instances of app blocking include Egypt’s restriction of Signal access in December 2016, Iran’s ban in January 2018, and China’s prohibition in March 2021.

“Currently, there are no global legal restrictions on the use of sunglasses,” Urban remarked.

Future Trends in Privacy

Significant expansion within the privacy sector is anticipated in the coming decade, driven by businesses recognizing the advantages and foundational support provided by privacy-enhancing technologies.

Recent research conducted by Cisco indicates a strong return on investment in privacy. The study revealed that 75% of respondents reported experiencing multiple benefits, including increased agility, innovation, and competitive advantage.

Furthermore, nearly all companies surveyed (97%) identified at least one positive outcome resulting from their privacy investments.

The privacy management market, encompassing key players such as IBM, BigID, and OneTrust, held a valuation of $450 million in 2018.

Projections estimate a more than sevenfold increase in this market by 2025, reaching a substantial $3.2 billion.

Key Findings from the Cisco Study

• A substantial majority (75%) of organizations are realizing multiple benefits from privacy investments.
• Almost all companies (97%) are experiencing at least one positive outcome.

These figures underscore the growing importance of data privacy and the increasing willingness of organizations to invest in solutions that address evolving regulatory landscapes and consumer expectations.

The projected growth highlights the potential for continued innovation and development within the privacy technology space.