The Advantages and Challenges of Scaling Tech Companies in the UK

September 2020

Darktrace Advisory Board Member and celebrated technology entrepreneur, Dr Mike Lynch OBE, sits down with Poppy Gustafsson, CEO of Darktrace, to discuss the challenges facing tech companies looking to scale in the UK and the potential impact of Brexit. Darktrace was seed-funded by Invoke and the Invoke team played an instrumental role working with the company's founders in the early days.

Mike: As the former CFO, you were the one to pay the £15 to incorporate the company six years ago. You're now CEO and Darktrace has more than 4,000 customers and 1,400 employees. What were the early days like and how do you think you've managed to scale the company so quickly?

Poppy: When Darktrace was formed, the world of cyber was all about keeping the bad stuff out. Our proposition turned that on its head. The Enterprise Immune System is all about saying that you need to know your organisation first, in order to understand when a “bad” or “unusual” event occurs. This in turn relied on an entirely new type of technology – advances in maths that allowed machine learning to do the calculations around “self”. It is exciting, it is new, and it therefore takes a special type of investor to make the leap into trusting a new technology, turning an existing problem on its head.

We were lucky. We had a fantastic group of cyber security experts and government intelligence agents who really understood the problem we were trying to solve, we just needed guidance on how to take something so unique to market. You and the Invoke team understood what we were doing, backed us from the outset, and because of your hands-on business model and variety of expertise, helped us with our go-to-market strategy and our R&D to develop a truly differentiated technology. As we have evolved as a company, finding the right type of investors has been key. My experience has been that there is no shortage of capital but conveying your corporate history and future opportunity in a way that is attractive to investors was definitely a learning curve.

Mike: You have built an incredibly successful business in a very short space of time and effectively reinvented the world of cyber security. How do you see the future of this sector in the coming years and how do you think about innovation more generally?

Poppy: In terms of the immediate future, cyber security has fast become about balancing risk, opportunity and trust in an uncertain world. Technology is incredible – widespread and rapid digital transformation allowed businesses to keep the lights on amidst the pandemic. And in some cases, increased productivity. Aiming for absolutely no risk in your business is unrealistic – dynamic workforces don't allow for that – but you have to find a way of managing that risk. Security teams need tools that understand the pattern of life across everything: collaboration tools, employee inboxes, the cloud, IoT, the list goes on.

We've seen a huge increase in attackers taking advantage of the trust established between colleagues across the board. An example from one of our customers involves a patient attacker impersonating a board member and a CEO with a well-timed and topical email thread to extract information from a senior finance team member over several days. This is only going to intensify, become more sophisticated and virtually impossible for humans to spot.

Looking further ahead, we are going to see an increase in machine on machine attacks. AI versus AI. So, it's about whose mathematical algorithms are better. Incorporating AI in attacks will allow cyber-criminals to achieve greater scale and speed than ever seen before. This is because the manual effort of tailoring an attack to specific individuals will, in large part, be automated. 'Offensive AI' malware will be able to learn about its environment and use the information that it sees to better direct the attack, while identifying the most valuable data to steal.

Mike: Darktrace is currently one of the most successful software companies in the UK. What do you see as the advantages of founding and building a company in the UK?

Poppy: At Darktrace, our biggest asset is our people, and in the UK, we are very good at investing in our people and our academic research. Some of the best advances in machine learning have come out of London and Cambridge and we see ourselves as a poster child for a successful British tech growth company. Our roots are firmly planted in the science and maths traditions from our leading universities, and we have benefited from initiatives such as entrepreneur relief and R&D tax credits that previous governments put in place.

It's also important to acknowledge that the UK is a world leader in cyber technologies, thanks to our historical roots from Bletchley Park, to GCHQ today. As a country, we have been wise to understand our historic strength in defence and national security and to create a strategy around cyber which has helped the ecosystem, trickling down from the security agencies all the way to start-ups.

The challenge in the UK comes when companies get to a certain point and then sell out to larger businesses in the US because they are unable to reach that same scale themselves. Luckily, we haven't had that problem. As an entrepreneur, I appreciate that I have had an easier path than someone in my shoes might have had two decades ago. From where I sit, I am daunted by looking at the next stage of capital raising in the public markets and seeing few deep tech companies on the FTSE100. That is something that needs to be fixed – fast.

Mike: Looking ahead, where do you think future growth is going to come from?

Poppy: The cyber security market is huge, and we're showing no signs of slowing down. But as a British business, the coming months will be crucial as we approach the end of the Brexit transition. Our future as a country relies on next-gen technology companies being allowed to thrive to provide employment and create ecosystems that leverage our science education.

As I said, our people are our main asset, so we are very alert to changes in laws with visas and in ensuring Britain is a country that continues to attract technology know-how from all over the world. I think it's essential that the UK signals to the world that it is open for business, and that this is a good place to start a company. I like to think we represent a good poster child for any entrepreneur thinking about it.