An award-winning pioneer in the burgeoning cybersecurity industry, he is a veteran of the espionage community and a salaried member of the British political organisation.
It is also the subject of applause from a deep-pocketed US private equity house, which is mulling an acquisition that could bring management a payout of £200 million.
But the dark traces are clouded over in the form of analyst criticism of the business model and concerns over workplace culture, not to mention an escalating legal battle over a multi-billion pound fraud.
Within weeks, a High Court judge will decide whether Darktrace founder and British billionaire entrepreneur Mike Lynch can extend his fight against extradition to the United States. do.
There, the man, sometimes referred to as Britain’s answer to Microsoft founder Bill Gates, was linked to the $11 billion (£8.5 billion) sale of Autonomy, the technology company he founded, to Hewlett-Packard. will be prosecuted for fraud.
So far things haven’t gone well for the 57-year-old tech genius.
Lynch’s former lieutenant and Autonomy’s chief financial officer, Sushovan Hussein, has already been in prison for five years on charges related to the same incident.
In January, the High Court ruled in a civil fraud case filed by HP that Lynch tricked HP into buying his company.
At about the same time, then-Secretary of the Interior Priti Patel decided that Lynch could be extradited. The charges he denies carry a maximum sentence of 25 years in prison.
Lynch’s only hope of avoiding extradition is to be given the right to appeal, with a decision expected later this month.
This uncertainty casts a shadow over Lynch as well as Darktrace. Despite claiming to be immune to Lynch’s legal woes.
There’s at least a sizable chunk of the transatlantic political and espionage community in the corner of Darktrace. Its advisory board includes former Weardale MI5 director Baron Evans, his 35-year CIA veteran Alex Wade, and former British Home Secretary Amber Rudd. Former Conservative minister Lord Willetts is on the board, and another former CIA man, Marcus Fowler, runs the US subsidiary Darktrace Federal.
Last year, as Darktrace geared up for a stock market float, Rudd lambasted the company’s efforts to stay away from Lynch and lamented the lack of spotlight on its predominantly female leadership team. . It is the founder who is mentioned.”
Documents filed before Float went some way to explain it.
Darktrace has acknowledged that among the risks associated with an initial public offering is the prospect of liabilities arising from the sale of Autonomy.
These included potential money laundering charges. If it turns out that the proceeds of that deal had funded £6.6m in startup loans provided to Darktrace as Lynch’s investment vehicle, Invoke Capital, grew.
But the connection to Lynch doesn’t end there.
Lynch was more than just a source of funding, according to one person familiar with the company’s early days.
“He is reported to be an early investor who gave them office space,” they said.
“It was his idea, he was the creator, he brought in the first people, he named it, he named it the immune system [the AI cyber-defence system that has become Darktrace’s flagship product]”
Lynch remained a member of the company’s scientific and technical advisory board until earlier this year, when coverage of his trial sparked a fever pitch. Together with his wife Angela Bacales, he still owns over 12% of the company.
This week, the company prepares to report its first set of financial results as a public company. However, the long-term backdrop is an acquisition interest by US private equity group Thoma Bravo, which could soon go private again.
Judging by the enthusiastic stock market reaction since interest in the bid increased, a deal could go for around £3.6bn, a figure Mr Lynch claims is considered by US officials to be a “compelling ”Without tracking, it claims to be higher.
Even at that price, Lynch and Bacales’ cut would be over £430m.
The rest of the management, including Chief Executive Officer Poppy Gustafson, could share in payments of up to £200 million, according to a stock market filing issued last month.
But one of Darktrace’s most staunch critics, hedge fund ShadowFall, argues that this very group of people should give investors a reason to pause.
“The general view seems to be that Darktrace’s current management had little to do with Autonomy,” said Matthew Earle, managing partner at Shadowfall. .
“It couldn’t be further from the truth.”
About 41 former Autonomy employees eventually joined Darktrace, according to ShadowFall research, leaving more than 25, including Gustafsson and Chief Strategy Officer Nicole Eagan. At Lynch’s civil fraud trial, HP attorneys described Egan as part of a trusted “secret society” surrounding Lynch.
Earl also expressed concern about the percentage of Darktrace’s budget that goes to research and development. This is an essential area of spending in a rapidly developing field like cybersecurity.
The company spends significantly less than its competitors, he said. His rival, Vectra, posted a now-deleted post on its website that blatantly mocked his Darktrace approach.
Another question mark, according to Earl, is churn rates. That’s how fast companies that paid for Darktrace’s boasted AI-driven protection choose not to renew their contracts.
Darktrace typically operates on a three-year contract, Earl said.
This means that the reported churn rate of 6-8% could be much higher. This is because the majority of customers have only signed up in the last two years and remain contract bound. This masks the withdrawal rate of those eligible to defect to their rivals, as Shadowfall claims.
“We think it’s between 20% and 30%, much higher than our competitors,” Early said.
If the churn rate is that high, ShadowFall’s analysis suggests that it could be due to a highly aggressive sales culture.
Earl claims to have seen an unusual number of complaints on job review website Glassdoor about toxic workplace behavior in pursuit of new business.
One former sales employee who worked for the company for over a year said there’s some truth to that.
“Everything we did was monitored through software on the computer,” they said.
“Sometimes people ask me why I took a five-minute break, or why I didn’t have enough activity on my laptop while monitoring how many emails I was sending.”
Employees attributed this to a highly aggressive sales culture as the company geared up for stock market float and sought to hone its credentials as a market leader.
“It was stressful and at times toxic,” they said. “On the one hand, it was very lucrative.”
Darktrace did not return a request for comment.
Comments
Post a Comment