Microsoft’s M12 Leads $21M Round for Spycloud’s Security Software

Austin—Spycloud, an Austin cybersecurity startup, has raised $21 million.

The funding round was led by M12, the venture fund of tech company Microsoft (NASDAQ: MSFT). New investor Altos Ventures and existing investors Silverton Partners and March Capital Partners also participated.

Spycloud, which was founded three years ago, makes software that prevents hackers from taking over professional and personal accounts online. The startup identifies vulnerable accounts and passwords and then notifies the companies and employees to reset their credentials before “criminals can commit fraud or cause significant harm to finances, IP, sensitive data and brand reputation,” according to a press release. Its customers—such as Cisco—are in a variety of industries, including hospitality, financial services, healthcare, and other sectors.

SpyCloud said it has recovered and analyzed almost 3.5 billion sets of online credentials from nearly 3,000 data breaches, so-called “combo lists,” and other dark web sources since 2018. More than 2.6 billion of those credentials included a password.

“We want to protect employees at work as well as at home from account takeover,” Ted Ross, Spycloud’s CEO and co-founder said in an interview Wednesday. “We have decades worth of breadcrumbs that have been left behind by everyone who has an online identity.”

Ross said Spycloud will use the funds to pay for marketing and sales efforts and to make new hires. Additionally, the startup is looking to staff up an office in Europe to support ongoing and future sales there as part of an international expansion.

Identify theft hit an all-time high in 2017 costing victims $16.8 billion, an increase of eight percent in the last year, according to Javelin Strategy, which has tracked such fraud since 2003. For the first time ever, Social Security numbers (35 percent of the total fraud) were compromised more than credit card numbers (30 percent) in breaches, the San Francisco consultancy reported.

Spycloud keeps up with criminals’ methods by creating personas in various underground communities and tracking the culprits there, Ross said. “The criminal thinks our persona is a bad guy,” he said. “As they come up with new campaigns to break into new organizations, they share it with our persona. We don’t have to track a bunch of malware. We literally have relationships with them.”

In 2017, SpyCloud raised a $2.5 million seed funding round and a $5 million Series A round last year. Both investments came from Silverton Partners and March Capital Partners.

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