FinSec and The Path To Become A Unicorn

FinSec and The Path To Become A Unicorn

FinSec and The Path To Become A Unicorn 150 150 Raymond Blyd

Forter became the 500th unicorn and Nuix wants to raise $705 million by offering shares to the public via an IPO. What do they have in common?

TLDR: securely processing data at scale drives the information security trend (InfoSec). Investment in reliable data offers financial security (FinSec) …and a path to unicorn status.

InfoSec = Trust

Let’s recap: the Fall of Legal Tech was published before Atrium LTS went puff and the financials of legal industry darlings revealed no profits in sight. How? After analyzing a decade of startups, we noticed that selling to the practice of law is not a shortcut to a $100 million annual recurring revenue. We’ve yet to find definite evidence that marketplaces or case management are able to reach this within five years after being founded. Why? As summarized in our only analysis on AI, the legal industry is designed by law to operate without tech. Moreover, it is the only industry with the legal firepower to repel any innovation that threatens its financial security.

The legal industry can reach into and regulate any market. The Cannabis compliance market caved after regulation and lawyer rates choked their momentum. However, because Risk Tech operates at the fringes of the legal industry, some markets can slip through the cracks of regulation and bloom. Case in point: electronic signature has seen its fair share of court battles for legitimacy. That didn’t stop e-signatures from making DocuSign a Nasdaq index fund and Taichiro Motoe a billionaire. The reason is that Risk Tech is more about ensuring everyone’s financial security.

e-Signatures are just one of the many mountain tops on the Risk Tech horizon. Privacy, security, and compliance harbor much smaller volcanoes with similar potential. The challenge is not only making information tamper-free but also making it error-free. Any process that ensures we can trust information could achieve unicorn status. We know the information to be valid when we get it from a Notary. We can always turn to any Judge if we suspect fraud in, say, elections (*wink*). However, neither institution is designed to handle the scale in demand for secure information. We just have to trust, that the technology we use, can do the trick.

Trust = Wealth

Remember Mark Zuckerberg famously made Facebook’s prime directive: “move fast and break stuff“. We now learned that we can move fast, but we should never break trust. Credit to Mark to change course after 2014 and I personally thanked him for making progress in general. Facebook made an effort to pick truth over growth [paywall] in its news feed during the elections.

Yet, we are nowhere near safe. As a matter of fact, things have gotten worse. After COVID-19, the stock markets embraced tech stocks as the only crutch for the world’s economy. In the third quarter of 2020, YouTube and Facebook reported record-breaking returns in a combined total of $26 Billion.

Now, what do these numbers have to do with information security? The world trust tech companies to handle personal information securely. In return, we permit them to use our information to recommend how we run our lives. These recommendations only work at scale if they are automated. The recommendation algorithms are optimized to give us what we want but not necessarily what we need. Here’s a video explainer by NBC on what happens when algorithms optimize for our emotions. Especially now in the midst of a pandemic, society needs honest answers based on facts and science.

Wealth = FinSec

While society at large must fend for themselves when it comes to information exchange, the business sector has more guard rails. Six months ago, we broke that NS8 first raised $123 million amount as a fraud detection service. Three months ago we shared the news that they themselves were under a fraud investigation. Both stories embody the value of data security, and, of course, due diligence. Each story exemplifies how much we should value the truth.

This trend has been slowly building up in the shadows of the legal industry. Now these companies suddenly surfaced with massive valuations. Here’s how we discovered this. In November, we started combining Risk Tech and Legal Tech numbers and compared those to previous periods. We noticed a 44% increase over September mostly driven by e-signatures. That is the chart on the left in the image below.

Then we dug deeper and generated a list of the last three years. We combined Risk Tech and Legal Tech and ranked the top 20 categories. This revealed that most of the capitals were invested in technologies that register, analyze, identify, and regulate human behaviors. Especially behaviors impacting financial transactions. The actions usually designed and regulated by law. When we translate this to technology, it looks like this:

  • Register with eSign & Contracts;
  • Analyze with eDiscovery & Data Analytics;
  • Recognize with Identity, KYC, Fraud Detection & AML;
  • Regulate with Privacy, Governance Risk & Compliance (GRC).

To reveal the entire list, you can drag the slider to the right in the image below.

Ultimately, the deal we want with data is that it tells us the truth. If we can’t trust our information companies collapse, economies crumble and citizens suffer.

Wonder which companies are on track to become the next DocuSign or Forter? Would you like to see the pitch deck used by one to raise $6+ Million series A? Just email me.

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