It is an award-winning pioneer in the fast-growing cybersecurity industry, boasting veterans of the spy community and the British political establishment on its payroll.
It is also the subject of admiring glances from a deep-pocketed US private equity house pondering a takeover that could lead to payouts worth £200m for its management team.
But there are clouds hanging over Darktrace, in the shape of analysts’ criticism of its business model and concerns about its workplace culture, not to mention an escalating legal battle over a multibillion pound fraud.
Within weeks, a high court judge will decide whether Darktrace’s founder, the British billionaire entrepreneur Mike Lynch, can prolong his fight against extradition to the US.
There, the man sometimes dubbed Britain’s answer to Microsoft founder Bill Gates would face charges of fraud relating to the $11bn (£8.5bn) sale of Autonomy, the tech business he founded, to Hewlett-Packard.
It has not gone well for the 57-year-old tech genius so far.
Lynch’s erstwhile lieutenant, Autonomy’s finance director Sushovan Hussain, has already been jailed for five years over charges relating to the same events.
In January, the high court ruled, in a civil fraud case brought by HP, that Lynch duped HP into buying his company.
Almost simultaneously, the then home secretary Priti Patel determined that Lynch could be extradited. The charges, which he denies, carry a maximum custodial sentence of 25 years.
Lynch’s only hope of avoiding extradition is to be granted the right to appeal, with a decision expected this month. Failure would set the extradition wheels in motion.
The uncertainty casts a shadow not just over Lynch but over Darktrace, despite its insistence that it is unaffected by Lynch’s legal travails.
Darktrace does at least have a good-sized chunk of the transatlantic political and espionage community in its corner. Its advisory board includes former MI5 director Baron Evans of Weardale, 35-year CIA veteran Alex Wade and former British home secretary Amber Rudd. Former Tory minister Lord Willetts is on the board, while another ex-CIA man, Marcus Fowler, runs US subsidiary Darktrace Federal.
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Last year, as Darktrace geared up for a stock market float, Rudd came out to bat for the company’s effort to distance itself from Lynch, lamenting that a largely female leadership team was being starved of the spotlight because “the only name that seems to get mentioned is the founder”.
Documents filed before the float went some way to explaining that.
Among the risks attached to the initial public offering, Darktrace admitted, was the prospect of liabilities arising from the Autonomy sale.
These included potential money-laundering charges, should the proceeds of that deal be found to have funded £6.6m in start-up loans that Lynch’s investment vehicle, Invoke Capital, extended to Darktrace as it grew.
But the links to Lynch don’t end there.
According to one person familiar with the company’s early days, Lynch was far more than a source of funding.
“He gets reported as being an early investor who gave them some office space,” they said.
“It was his idea, he was the creator, brought the first people in, named it, named the immune system [the AI cyber-defence system that has become Darktrace’s flagship product].”
Up until earlier this year, when coverage of Lynch’s trial reached fever pitch, he remained a member of the company’s science and technology advisory council. Together with his wife, Angela Bacares, he still owns more than 12% of the company.
This week, the company is preparing to announce its first set of financial results as a public company. But the longer-term backdrop is ongoing buyout interest that could soon take it private again, from US private equity group Thoma Bravo.
Judging by the exuberant stock market reaction since bid interest emerged, a deal could be done at close to £3.6bn, a figure Lynch claims would be higher were it not for the “vindictive” pursuit of him by the US authorities.
Even at that price, Lynch and Bacares’ share of the proceeds would be above £430m.
The remaining management team, including chief executive Poppy Gustafsson, could share payouts of up to £200m, according to stock market filings issued last month.
But one of Darktrace’s most persistent critics, the hedge fund ShadowFall, contends that this very group of people should be giving investors cause for pause.
“The prevailing view seems to be that the current management of Darktrace had relatively little to do with Autonomy,” said Matthew Earl, managing partner of ShadowFall, which specialises in taking short positions at companies it thinks are overvalued, betting on their share prices falling.
“That couldn’t be further from the truth.”
According to ShadowFall’s research, about 41 former Autonomy employees ended up at Darktrace, of which more than 25 remain, including Gustafsson and chief strategy officer Nicole Eagan. During Lynch’s civil fraud trial, lawyers for HP described Eagan as part of a trusted “cabal” around Lynch, as he came up with the very accounting strategies that prompted the US company’s legal claim.
Earl has also raised concerns about the proportion of Darktrace’s budget that goes on research and development, an essential area of spend in a fast-developing area like cybersecurity.
The company spends considerably less on this than competitors, he says. Rival Vectra has even openly mocked Darktrace’s approach on its website, in a now deleted post.
Another question mark, says Earl, is the churn rate, the speed at which companies that have paid for Darktrace’s much-vaunted AI-driven protection are choosing not to renew their contracts.
Darktrace typically runs on three-year contracts, says Earl.
That means, he says, that a reported churn rate of 6-8% could be much higher, because the bulk of its customers have only signed up in the last two years and remain locked in to their contracts. This, ShadowFall argues, masks the rate of exit among those that are entitled to defect to a rival.
“We think it’s between 20% and 30%, which is much higher than competitors,” said Early.
If churn rates are that high, ShadowFall’s analysis suggests it could be due to a hyper-aggressive sales culture.
Earl claims to have identified an unusual number of complaints on job review website Glassdoor about toxic workplace behaviour in pursuit of new business.
One former employee in the sales department, who spent more than a year at the company, says there is some truth in that.
“Everything we did was monitored through software on our computers,” they said.
“Sometimes they’d ask why you had taken a five-minute break or asking why there hasn’t there been enough activity on your laptop, monitoring the number of emails you were sending.”
The employee put this down to a highly aggressive sales culture as the company geared up for its stock market float and looked to burnish its credentials as a market leader.
“It was stressful and sometimes toxic,” they said. “On the other hand it was very lucrative.”
