There's money in cyber crime

Venture capitalists are surfing a cyber crime wave. They aren't hacking into internet accounts, stealing credit card numbers or running identity theft rackets. They are, however, profiting from measures introduced to combat these online dangers by backing a growing number of cyber identity protection services.

“During a recession you always see crime levels go up. This is the first major recession of the digital age so we are seeing cyber crime growing rapidly as well,” says Tom Ilube, chief executive of Garlik, which bills itself the UK's “online identity experts” and recently received $2.4 million in Series C backing from venture capital firms 3i and Doughty Hanson Technology Ventures.

He's not wrong. Last year, the volume of online crime rose by 33 percent and $265 million was lost through internet theft worldwide, according to Internet Crime Complaint Center research.

“As a consumer there is all sorts of information about you that is collected without you knowing: credit history, shopping trends and search behaviour,” says Andreas Stavropoulos, a managing director at US venture capital firm Draper Fisher Jurvetson. “Consumers need to both feel protected and also reap value from being in control of their personal data.”

INFORMATION DELUGE
To combat what Ilube calls “the deluge of personal information that's hit the web recently”, Garlik's systems use semantic technology to search the web for information that might leave a person vulnerable to identity theft. Once a threat – such as your mother's maiden name or full phone number – has been detected, the system alerts the subscriber so that they can contact the website or internet service provider to get the details removed.

Ilube says there is an enormous amount of public money due to be pumped into such technologies worldwide. Although plans have not yet been finalised, the US is talking about investing as much as $30 billion into cyber protection systems over the next two years.

It's no surprise that VCs have got there first. Identity protection firm LifeLock has received venture backing from Goldman Sachs, Kleiner Perkins Caufield & Byers and Bessemer Venture Partners. In addition, Massachusetts-based Identity Truth is backed by VC firms Argonaut Ventures and Stata Venture Partners; while Texas-headquartered online identity protection firm Debix has backing from Merus Capital and Trellis Partners; and California-based Trusted ID is backed by Draper Fisher Jurvetson.

“The US has a slightly different problem to the UK. The banks are better at protecting personal credit card details but information such as social security numbers and personal data like addresses and phone numbers are more readily available. The emphasis is more on the protection of personal data than financial data,” says Doughty Hanson managing director Nigel Grierson.

As the name suggests, California-based Reputation Defender detects information regarding your reputation and helps you remove anything potentially slanderous. “This is a war you have to wage as a consumer. You need to have the most up-to-date weapons,” says Reputation Defender's chief executive Michael Fertik. The firm recently received venture funding, although the details have not been disclosed.

“The reason investors are looking at this is that over the next few years this is going to be as big as anti-virus systems because the same scale of problem exists in this area,” Ilube says. “This is quite a specialist area so if you're a mainstream VC you might not realise how much money is going into it. Those that have clocked it are keenly looking at the companies they can get behind.”