Three local start-ups announced big funding rounds last week, the latest examples of how fast-growing technology companies are getting their capital from private investors rather than going public.
District-based education technology company EverFi received $40 million from a group of private investors that includes Google Chairman Eric Schmidt and Amazon founder Jeffrey P. Bezos. Northern Virginia cybersecurity start-ups PhishMe and Distil Networks raised $42.5 million and $21 million, respectively, from deep-pocketed private investment funds. (Bezos owns The Washington Post).
Private money is playing a much bigger role in the technology industry than it did in recent years, as firms such as Uber reach astronomical valuations without entering the stock market. Money from private investment banks (or Saudia Arabian oil money, in Uber’s case) means companies can raise as much as the biggest initial public offerings of the 1990s without entering the public markets.
“There’s a huge amount of extra money in the growth equity side to keep great companies private longer,” said John C. Backus Jr., managing partner at Reston-based New Atlantic Ventures. “What EverFi did I would call a private IPO.”
EverFi has grown by selling online education modules that teach things rarely handled in the classroom. A two-and-a-half-hour course called AlcoholEdu has been used by colleges around the country for almost a decade, and a newer course focusing on sexual-assault prevention has 6 million people enrolled this year.
The eight-year-old company turns a profit selling three-year licenses to more than 3,300 universities and companies, some of which run for more than $1 million a year.
“What that gives you from a business model perspective is really, really great predictability,” said chief executive Tom Davidson. “If you’re a company that is perceived to have some strength and momentum, this is a really good place to be.”
EverFi has been a darling of investors for some time. Its latest investment is the largest of three funding rounds that add up to about $61 million. And it is not alone.
Down the road in Northern Virginia, Arlington-based Distil Networks, which specializes in thwarting the electronic robots employed by hackers, upped its funding total to $65 million. Meanwhile, PhishMe, a cybersecurity start-up that trains corporate workforces to click away from phishing emails, raised a whopping $42.5 million.
Both companies received money from California venture fund Bessemer Venture Partners, as well as private investment funds, and they are well-capitalized enough that they have bought out other start-ups.
Where Distil tries to thwart automated hacks, PhishMe focuses on stopping human attacks by helping people recognize when they are being tricked. PhishMe simulates “spear-phishing” attacks — a type of cyberattack that tries to get employees to click on malware-infected links — by sending fake emails cleverly disguised as the real thing.
Employees “don’t know the difference between a simulation and the real thing, so you’re always on your toes,” said chief executive Rohyt Belani.
Company IT administrators can see which specific employees tend to fall victim and coach them on how to do better. The service also installs a “report phishing” add-on to company browsers, giving employees a way to safely report suspicious emails.
This is PhishMe’s third time rasing funds since its founding in 2011 and it already pulls in $35 million in revenue annually. Belani said that he sees funders being much pickier about who they do offer money to, favoring safer bets.
“There was a period from 2013 to 2015 where everyone with the word ‘cyber’ associated with their name was getting funded,” he said. “That’s changed . . . now it’s reaching the right level of selectivity.”