'Everyone acting like an owner is a key part of our DNA,' James Chappell, Digital Shadows

The booming cyber security start-up has raised more than $20m and is expanding into the US.

by Rebecca Smith
Last Updated: 07 Jun 2016

Some businesses flourish when dealing with growing pains; others collapse under the pressure. At the moment, Digital Shadows seems to be among the former.

The cyber security start-up was founded in 2011 by James Chappell and Alastair Paterson and has been growing apace ever since. In the past year the team has doubled to 80 members of staff  and that’s expected to reach 150 by the end of 2016. It’s branched out to the US where Paterson is now based and has powered through funding rounds, raising $22m in total. ‘It’s been pretty strong growth,’ Chappell acknowledges. ‘We are absolutely focused on accelerating that revenue and so far, we’ve met all the targets set by our venture partners.’

Cyber security is a good space to be in at the moment – insurance broker Willis Towers Watson estimates that the cyber insurance market is growing by 30 to 40% a year, while recruitment firm Manpower found demand for specialist cyber workers had increased fourfold over the past year. And companies are sensitive to the growing threat, seeing the damage suffered by others. TalkTalk’s high-profile hack affected less than 4% of its customers, but the cost of the attack was £42m. The CEO of infidelity dating website Ashley Madison was forced to resign in the wake of a cyber attack on his firm when numerous personal details were leaked. Organisations want to do what they can to protect themselves so it’s no wonder security is good business for specialists right now.

Read more: These businesses are cashing in on the cyber security wave

But Digital Shadows still had to differentiate itself. ‘We use the term "cyber situational awareness", which explains what we do nicely,’ Chappell says. ‘We monitor the digital footprint of our clients from a security perspective to give our clients situational awareness.’ Its system pores over 100 million information sources in 26 languages to find evidence of any leakage and alerts clients to this information.

‘We’ve seen cases where clients have had their internet domains – your .com addresses – copied online and someone trying to take advertising revenue off of them and we’ve helped get leaked documents taken down offline before they’ve become an issue,’ Chappell says. ‘We also spot attacks when they’re in the planning stages and help clients to focus their resources on protecting an asset we know is going to be targeted.’

Their first client was the NGO Human Rights Watch, before a batch of financial services firms followed. ‘We decided to focus on them because they tend to innovate more quickly in the security space, they tend to be big buyers of information security products,’ Chappell says. In the early days, Digital Shadows worked with a range of big banks through innovation programmes, giving them feedback on the product. ‘That really gave us our critical mass of clients, which allowed us to go and seek funding and grow the business from there.’

Following a seeding round with Passion Capital, Digital Shadows’ $8m Series A round with Storm Ventures closed in 2015 and earlier this year it completed a $14m round with Trinity Ventures and Paladin. While the company won’t disclose its turnover, revenue is four times last year’s figure and it now has just shy of 100 clients, ranging from financial services clients to retail to pharmaceutical companies. ‘The Series A was about scaling and growing our business in the US,’ Chappell (pictured) says. ‘Series B we didn’t really need to raise, but we could see this market opportunity growing and we wanted to monopolise it as quickly as possible so we wanted to scale quickly. Series B has enabled us to do that.’

As with any growing start-up, recruiting people of the right quality has been a challenge. ‘It’s absolutely critical to keep high standards, but it is tough,’ says Chappell. ‘We’ve been really fortunate that we’ve got quite an exciting growth story, we can inspire people with that as a recruiting tool.’ Another way to entice potential hires has been making each member of staff a shareholder in the business. ‘I think that’s important because everyone acts like they own the business because they do,’ he adds. ‘That’s been a really important part of our growth and we’ve managed to keep that going as we’ve brought on our US colleagues. Everyone acting like an owner is a really key part of our DNA.’

So far, the expansion overseas has been relatively smooth sailing. Chappell hasn’t had to field late night or early morning phone calls from unaware clients botching the time difference. ‘As long as you communicate to people what your constraints are, I think they’re quite accommodating,’ he explains. ‘I talk to my co-founder every day; I think we probably talk more now than when we were both in the same office.’

A bigger challenge has been making sure the company has enough resources to keep the momentum going, from having enough desks to ensuring the right management structure is in place. ‘We kind of have to reinvent ourselves as a company every 12 months, because of the scale at which we grow,’ Chappell explains. ‘The processes we do have stop working so well and we have to invent and create a new set of processes which are appropriate to a company of our size.’ Rather than proving too much of a hindrance, Chappell says he and Paterson have relished the task. ‘There’s so much more we can do and I’m looking forward to growing further over the next five to ten years.’

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