Suddenly gone: Ireland’s #1 startup exits quickly in $44 million sale. But why?

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Irish startup Trustev, working on an automated fraud tracker that avoids blacklisting purchasers by mistakes and instead relies on detecting credit card fraud in real-time, was acquired by American credit reporting company TransUnion for $44 million.

Earlier this year, Geektime listed Trustev #1 on its list of 20 hot Irish startups on the Emerald Isle. Founded in 2013 by CEO Pat Phelan and CTO Chris Kennedy, it had raised $7.8 million in less than two years from investors like Wayra, ACT Venture Capital, Mangrove Capital Partners, Greycroft Partners, Notion Capital, and Enterprise Ireland. Angel investors included Shane Naughton, David Coallier, and Kevin Abosch.

Undoubtedly Trustev’s risk analytics will complement the deep datasets of TransUnion, which claims it has already integrated Trustev into TransUnion’s ID Manager software and that customers have already “experienced up to a 60% decrease in fraud losses.”

Chris Kennedy is co-founder and CTO at Trustev
Chris Kennedy is co-founder and CTO at Trustev

“As fraud grows in volume and sophistication, TransUnion continues to invest in building our global capabilities to help companies manage their risk,” said TransUnion CEO Jim Peck. “Holistic information is a powerful tool to help our customers approve good transactions and prevent fraud, and Trustev’s innovative capabilities are at the forefront of technology in this increasingly critical field.”

Speaking to Geektime earlier in 2015, CMO Rurik Bradbury explained how “Trustev takes a unique approach to stopping e-commerce fraud. Rather than creating ‘rules’ about which transactions to block (e.g. whole countries, or anonymous visitors), the software looks at all data points simultaneously, so it can make an intelligent determination, without red-flagging customers by mistake. This approach can virtually eliminate fraud and increase sales by 2% by no longer blocking real customers accidentally. The team comes from many leading technology companies including Facebook, Telefonica, Symantec and Paypal.”

A very quick exit for a cybersecurity company

While the news is good for the company, which likely made a profit after raising less than $10 million in just two years of operation and without a formal Series A, including a convertible note, it is a remarkably quick and low number exit for a cybersecurity company with as much hype as Trustev.

A comparable company in Israel, BillGuard, was bought out by P2P lending marketplace Prosper in September for about $50 million. That also was triple the amount of money it had raised up until its sale, which similarly brought up questions about the premature exit. BillGuard is unique in that it tries to detect identity theft by monitoring metrics other than fraudulent credit card transactions, which make up only 15% of ID theft cases. One of their direct competitors, LifeLock, last raised capital in 2012, but it raised $100 million, bringing its total funding to $160 million.

Is the cybersecurity bubble popping?

The sector is growing rapidly and will be worth $3.22 billion by 2018 according to Markets and Markets. Within the talk of a general bubble for private markets relating to possible overvaluations of startups (thanks in large part to the unprecedented fundraising of not-so-profitable companies like Airbnb), there is concern about certain verticals, in particular cybersecurity. While investments grew immensely in 2014 ($7.3 billion in 1,028 deals), cybersecurity seed rounds hit a 5-year low according to CB Insights. According to the Cybersecurity Market Report put out by Cybersecurity Ventures earlier this year, there is much to be wary about with the deluge of new companies in the sector.

“A big challenge in the cybersecurity analytics space is sifting through all the vendor hype to find the right tool . . . since each company has its own unique needs and the market is crowding with new entrants ranging from major tech vendors to startups flush with lots of VC cash to power their marketing spin,” says Steve Morgan, Cybersecurity Ventures’ founder. Many companies define themselves and their services vaguely, making it tough to discern the utility of one company’s solution versus another’s. It’s possible that some companies have become more cautious in making an investment in a major cyber solution, making one major corporate client a valuable thing for a company like Trustev.

There are a number of competitors in the automatic fraud detection vertical, including Israeli company Forter, which has raised about $18 million in the same time period as their Irish compatriots. Signifyd has raised around $11 million total through Series A from Andreesen Horowitz, BYU Cougar Capital, IA Ventures, QED Investors, Resolute, Tekton Ventures, Allegis Capital, and several other seed funders. Others include Idaho-headquartered Kount, electronic identity verification (eIDV) Trulioo ($8.3 million raised to date), London-based Veridu (about $1.3 million in seed funding) and Atlanta-based Finovate alum IDology (making its own investments in the likes of Payfone).

We will have to wait and see if these competitors have better luck than Trustev at growing into larger companies or will need to exit prematurely.

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