Clouds gather over Darktrace’s £3bn stock-exchange listing

Darktrace, the cybersecurity star, is planning to list on the London Stock Exchange. It is a promising company, but its top shareholder is in legal trouble. Matthew Partridge reports.

Deliveroo’s “disastrous” debut “damaged London’s reputation” for big tech flotations, says The Guardian. But now the City is about to receive a “shot in the arm”: cybersecurity firm Darktrace is planning a £3bn listing on the London Stock Exchange. Founded in 2013 by mathematicians from the University of Cambridge, artificial intelligence (AI) experts and cyberspecialists from GCHQ, Darktrace creates digital-security products that “self-learn and self-heal” to enable businesses to “stay one step ahead of hackers and viruses”. Darktrace has already secured a range of customers and has an advisory board that includes the former MI5 director-general Lord Evans of Weardale.

Unfortunately, it is also beset by fraud allegations against its founding shareholder Mike Lynch, say James Cook and Matthew Field in The Daily Telegraph. Darktrace has admitted that the negative publicity concerning criminal (in the US) and civil (in the UK) charges against Lynch, which stem from his time as CEO of Autonomy, could undermine the group’s reputation and share price. Lynch, who is fighting extradition to the US, denies any wrongdoing in both cases.

Too much for Goldman Sachs and UBS

The links between Lynch and Darktrace certainly run deep, says Graham Ruddick in The Times. As well as being a “key early backer” of Darktrace, Lynch and his wife own 18.5%, which could give the stock a nasty jolt if he is forced to sell his shares. There is even talk of potential liabilities from “possible money laundering offences” related to funding provided by Invoke Capital, the investment firm Lynch co-founded. Still, while the controversy was supposedly “too much for Goldman Sachs and UBS”, which reportedly declined to take part in the initial public offering (IPO), Darktrace believes the risk of being hit by any prosecution is “low”.

Lynch’s legal woes are “hardly an ideal backdrop to a market debut”, says Helen Thomas in the Financial Times. But Darktrace “looks like the kind of tech listing the London market has actually been hoping for”. This is because it already has “more than 4,600 customers in more than 100 countries... up from about 1,600 in 2018” while its software is “quick to deploy”, meaning it can make sales by installing its system and letting it show its worth in a two or three-week trial. Such subscription contracts “mean predictable, recurring revenue”.

At the very least, Darktrace looks a lot more substantial than Deliveroo, says Simon English in the Evening Standard. For one thing, it is an “actual tech company, rather than a moped food service with an app on top”. 

What’s more, “the share structure is a straight 1-1 on voting rights”, in contrast to Deliveroo’s dual-class system that many saw as “plainly unfair”. The size of the market has been estimated at $40bn, with Darktrace already making “a small profit” according to several accounting measures, compared with Deliveroo’s losses.

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