Winning investment validation

The internet age offers enormous opportunities, but digital risks are a very real threat. Co-founder and chief innovation officer James Chappell and his co-founder Alistair Paterson had a “hunch” that digital footprints would play an important role. So, they set up Digital Shadows to help companies manage digital risk and digital security.

Digital Shadows has raised $46m (£32.6m) over four main equity funding rounds following seed investment. Its investors include Octopus Ventures, Passion Capital, Storm Ventures, Trinity, TEN/11, Industry Ventures, Paladin Capital and World Innovation Labs.

“Ultimately we made a bet – we had a theory of how security would evolve,” says Chappell. With a stellar roster of VCs backing the company, “it really helps validate we are heading in the right direction”, he says.

Combatting viral impact

Digital Shadows entered a high-potential industry that Chappell believes is impacting every business across the globe.

When reading the news you can’t fail to see cyber security – it’s definitely a top issue.

James Chappell, Digital Shadows

Chappell explains that at first it took a while to convince clients and investors this threat should be a priority. But due to numerous high-profile attacks, including various hacking examples in the NHS, digital security is top of the agenda. “Digital Shadows is now pushing on an open door, as security teams really understand the challenge,” says Chappell.

Connections count

Having both worked in the security industry for over 15 years, Chappell and Paterson started the business with great connections and vast amounts of industry knowledge.

They had worked on high-profile consultancy jobs, including helping the Bank of England with its regulatory framework for cyber security.

“Our industry experience provided credibility and won work, and through this work we can make a compelling case to investors,” Chappell explains. This, he believes, has “shaped a viable and credible business model”.

Driving product innovation

Chappell says that although his business is “relatively unique”, Digital Shadows must work to fit as part of a complex ecosystem of over 5,000 security products. He believes being part of a network is essential to make sure the business remains “relevant and connected”.

He references Accenture’s London Fintech innovation lab programme as being an important networking platform for the business. Here he made a number of high-profile industry connections who were essential for early product experimentation and iteration. They also connected Chappell to early clients.

Aiming for profitability

Being capital-ready has helped the business generate healthy revenues. “The evidence has always been there to suggest this was going very well,” explains Chappell. He believes this is primarily how Digital Shadows has continued to be so attractive when raising investment.

Digital Shadows is using a recent £18.4m ($26m) investment round to push the company further towards profitability. “Many companies raise capital because they need more fuel in the tank,” explains Chappell. “We wanted to raise more to add more fuel to the fire.”

Expanding into Asia, the EU and the US, Chappell believes the company has a strong profile in the web security sector, which “more than justifies” the large amounts of investment the company has received.