Darktrace is expected to cut its valuation of its upcoming London IPO following the lacklustre Deliveroo float and increasing discussion of the cybersecurity company’s links to alleged fraudster and former Autonomy CEO Mike Lynch.
The loss-making company is now targeting a valuation of between £2.4bn and £2.7bn, according to Sky News. Previously it had hoped to list with a valuation of up to £3.5bn.
Some banks have reportedly turned down a chance to take part in the IPO because Lynch, who was an early investor in Darktrace via Invoke Capital, is currently battling extradition to the US on fraud charges. In 2011 he sold the software company Autonomy to HP for $11.7bn. A year later HP wrote off $8.8bn of Autonomy’s value and alleged that Lynch, along with former finance chief Shushovan Hussain, inflated the value of the British data firm.
Lynch, who is being sued by HP for $5bn in the UK, denies any wrongdoing. Hussain is serving a five-year prison sentence in the US after being found guilty of fraud. He has a stake of nearly 3% in Darktrace. Lynch and his wife own nearly a fifth of Darktrace.
UBS has reportedly backed out as a sponsor of the Darktrace IPO due to concerns about Lynch’s involvement with the company. However, Sky News sources questioned this account.
The Cambridge-headquartered firm, which provides artificial intelligence software for detecting and responding to cyber threats against enterprise networks, has sought to distance itself from Lynch in the run-up to its public listing. He stepped down from the Darktrace board in 2018.
Earlier this month Darktrace CEO Poppy Gustafsson said: “Mike is a visionary technologist and was an early investor in Darktrace but he isn’t involved in the day-to-day running of the company.”
Apart from Lynch, Darktrace appears to have other close ties to Autonomy. According to The Telegraph, “at least 30 figures from Autonomy’s past are involved in running Darktrace”.
Gustafsson previously held roles at Autonomy and Invoke Capital. Even with the reduced Darktrace valuation she is set for a multi-million-pound windfall. At a £3bn valuation, Lynch’s stake would be worth £550m and Hussain’s £84m.
Verdict has approached Darktrace for comment.
Earlier this month Darktrace confirmed it would list in London at the end of April in a boost for the London tech market despite the disastrous Deliveroo flotation. The food delivery app saw its value plunge by over 26% on its first day of trading, which has reportedly prompted Darktrace to take a more conservative approach to its own IPO.
Darktrace has dual headquarters in Cambridge and San Francisco and its decision to list in London bucks the trend of promising UK tech companies choosing to list on tech-heavy US exchanges.
The IPO comes at a high-growth period for Darktrace, which reported compound annual revenue growth of 58.3% between the 2018 and 2020 fiscal years. It had a pre-tax loss of $47.9m in the six months to the end of December. Darktrace estimates the total addressable market for AI-powered cybersecurity tools is worth approximately $40bn.
According to GlobalData’s Technology Intelligence Centre, the total value of AI cybersecurity investment reached $29.3bn in 2020.
The Darktrace IPO will see about £250m of new and existing shares in the company sold. Investment banks Jefferies and Berenberg are leading the float.