Going Passwordless

Episode 257

State of Identity Podcast


Episode 257

Going Passwordless

In this month’s Investing in Identity series, we break down the latest industry trends including:
  • Movers & Shakers: API-first passwordless startup Stytch, raises $90MM at a $1B valuation and Merit snags $50MM Series B to expand digital credentials platform
  • M&A Activity: Digital fraud prevention startup Sift acquires Keyless, a passwordless multi-factor authentication service provider and fintech firm Plaid has scooped up Cognito, identity verification and compliance company
  • Musings of the Month: Twilio and Boku Mobile Identity share a common goal and come together to offer Secure Onboarding. What’s next with identity verification and intelligence?


Travis Jarae, CEO at Liminal


Cameron D'Ambrosi, Managing Director at Liminal

David Fields, Partner at PTB Ventures

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Travis [00:00:10] All right, everybody, welcome to this month’s investing in identity form. My name is Travis Jarae and the founder CEO of Liminal, and I’ll be moderating today’s session. Before we get started, just a quick introduction to Lenore. For those that don’t know us, we’re a boutique strategy firm focused squarely on digital identity, fintech and cyber. And we do a few things. We focused mostly on advisory services, market intelligence, go to market growth strategy transaction services, as well as research and other industry engagement items. You can learn more about us at Liminal Dot co. So with that, let’s go ahead and jump right into it. Want to introduce the common cast and crew camera D’Ambrosio, managing director here at Liminal and Dave Fields, partner at PTB Ventures. Welcome guys.


Cameron [00:00:58] Thank you. Please note, all hairstyles are illustrative only.


Travis [00:01:04] Yeah, yeah. We probably should get some new photos. I mean, look, the three. Come back from the holidays. You didn’t do anything fun.


Cameron [00:01:14] Dodged Omicron, you know, hung out with the in-laws wins all round.


David [00:01:19] I also judged Omicron Matt while weaving through all of the red lines that were out the door to get tested. That was fun, but yeah, yeah, I’m healthy. All good.


Travis [00:01:29] Excellent. Well, I’m glad you guys both both seemingly made made it through the holidays. Well, let’s go ahead and jump into it. So while we were obviously dodging Omicron, apparently I think there were some notable deals last month before the break in December we wanted to cover. We have a shorter coverage of the deals and wanted to focus on some more of the predictions. So we have some deals here that actually ran in from the end of last year, but we’re still seeing a lot of activity from from the market right now. First is Stitch, and I know I’m going to probably turn this over to to Cameron here in a second. But Stitch Pass for the start up raising 90 million bucks. Series B valued at over a billion bucks. I know a lot. We’re talking about this. The Sift keyless acquisition So the fraud prevention players, after acquiring the authentication player key, was really breaking down that deal a little bit more here. A second merit taking a $50 million Series B for digital credentials. Quite interestingly, I thought I saw Experian Ventures on that one. I think that’s a pretty, pretty interesting hat tip for for experience. What next one was 1Password taking in six hundred twenty million dollars Series C? I found this one to be extremely exciting, given that I believe they they credited a lot of this fundraise, mostly to the rise of enterprise adoption from work from home. So App Store manager taking on big bucks, getting highly valued, seeing some of the celebrity investors back into that one nexus pinwheel, the API platform for income verification. I know this is one that here internally at LEMO, we’re keeping a close eye on taking out $50 million in for a Series B investment. And then lastly, two acquisitions first plan acquire Incognito for $250 million in Twilio, acquiring Boca for a little over 30 million. So lots of activity. Cameron, I’m going to toss over to you general thoughts on any of these deals, and we’re going to break down the acquisitions here. But any of the raises, any sort of signals that you’re starting to see in the market from this?


Cameron [00:03:45] Yeah. I mean, look, what what’s the common thread among many of these is thinking about what is this world going to look like in a future where passwords are receding to the background stitch? Obviously tremendous heat and excitement around them, you know, a unicorn with as I understand it, you know, a lot of buzz, a lot of developer interest. The commercials, I don’t think, are there yet, at least on paper. And then both Merritt and 1Password again thinking about how we’re going to be sharing attributes out into the digital identity ecosystem. I know there is much consternation in kind of the iMac universe around beloved, longtime stalwart of the password management space 1Password, taking on all of this money. And what that means for the future of the company. I think it’s a very clear indication that they understand the road is nigh for being a password manager and they need to get a foothold into the future of what authentication, what a password less future is going to look like. And that’s 620 million a war chest that they’re going to deploy to to make sure that they have a part to play in for her for lack of a better word. As passwords don’t exist, you can’t be a password manager if nobody has a password. So really exciting stuff and excited to keep our eye on them and how they deploy that dry powder.


Travis [00:05:13] Yeah, same question to you is over to you, Dave. I mean, lots of activity and we’re going to break down the acquisitions here, but what’s your general thought on some of these deals?


David [00:05:22] Well, I mean, I think, you know, my counterpoint a little bit to Cameron would be, you know, they are a password manager, right? And so the password manager is valued at almost seven times the password list start up, right? And so I get that there is an argument for a reduction in reliance on passwords. I think that’s a little more slightly more nuanced take than saying we’re going password less, right? And actually, like 1Password, has an incredible installed credential base which do leverage passwords, by the way, although obviously then how you authenticate into one password, you know, I suspect that many of these enterprises that are using to evade potentially unique keys, it’s much easier to deploy that to those sorts of things in a in an enterprise workforce environment. So it is interesting, right, that one password was a beloved password manager. I think it was largely was a consumer product that’s now gone more more and more enterprise. But I think that that I think what this says to me is that it’s actually going to be really hard, if not impossible, to risk to rip passwords out of the identity architecture that exists today. And so it represents an iteration in how we use them in our reliance upon them, rather than the fact that it’s just going to disappear entirely. Right. So that’s yeah, I would just add that kind of like bit of nuance. But by and large, I mean, so so again, we see huge, you know, very large raises, you know, $620 million. I think that’s the largest raise we saw last year or would have been larger than anything we saw last year. I assume this close to 2021, and they just announced it recently, but that would be the biggest round. And so you just look at the round stock like the valuations and the round sizes, they’re just all going in the same direction. So it’ll be interesting to look back at these three or five years and see, you know, which ones were actually the good rounds because they’re not all going to work out. I think a lot of them well, but, you know, not all of them.


Travis [00:07:20] Yeah. And I think that’s a really good point. I mean, you know, I was just recently on a call with a very large consumer cybersecurity business. We’re talking about passwords and talking about what is going to drive adoption for consumer digital identity. And you know, what kind of some of the solution segments and I think password managers is the existing successful solutions segment on our landscape that’s going to be driving. It’s going to be the bridge regardless. Yeah. To to to reusable identity or even just consumer digital identity schemes. So. And also, if anyone at 1Password is listening to this, my wife still complains that she’s locked out of her account. You can’t you can’t get her to actually get a new password manager because that one time one password four years ago locked her out. But we’ll move on from that one. And also, I think one of the things that you mentioned there, Dave, that’s quite interesting is all the deals are still moving in this direction of becoming more expensive. And I think what we’re starting to also see is a lot of these incumbent businesses that have, for the most part, relied on inorganic growth strategies are now reevaluating that right. They’re saying, Hey, we either need to have an organic growth strategy where we’re investing in product innovation, which means we need to be doing recruiting. So we’re going to be seeing a lot of brand refreshes, a lot of recruiting action out in the market. It’s very, very difficult right now to recruit against some of these unicorns like stock here that are able to bring on some of the best talent in the industry. And as a result, I’m forecast that we’re going start to see some other ways for innovation, whether this be through things, incubators or other accelerator programs or something else that we’re going to see where the incumbents can still have some form of inorganic growth that does not necessarily rely just on acquisition. So it’s going to be quite interesting. So let’s go ahead and move on. I know we want to cover three three acquisitions today, the first being swift and keywords, so maybe we’ll toss it over to today. If you can talk a little bit about it and then Cameron, give us some more thoughts on Cumulus, as I know you’re familiar with the business.


David [00:09:38] Yeah. So I mean, Sifters is really in the sort of online fraud detection and e-commerce. They’re are heavily involved in the payments and the checkout experience for digital commerce. So what I found really interesting about that is to see them moving into multifactor authentication. Watch now. So there’s this I think we’ve talked about this. This was a common theme. All last year was the blurring distinction in product categories. And then also companies that were addressing specific industry verticals moving into other industry verticals. Right now, we have a very clear example of that. Where somebody who was not previously part of like logging into your account. That’s not typically where we thought of safe sitting is now clearly moving into that space. I think one of the key things for me when I look at M&A and I know I made this comment in one of the previous webinars, but talked about, you know, can you create is is a network effect, something that you can create sort of post hoc through acquisitions and like, who does it make sense to be the acquirer? And so Sift is an example of a company which clearly has a data network effect because of where they sit. And now we’re seeing them move into other categories and potentially leverage that sort of data asset that they’re sitting on to create sort of, you know, product innovation in other categories. And part of that is going to be through M&A. They can then use to bolt on, you know, we’ll see what the integration looks like, but it’s a very interesting acquisition. It’s not one that I have a strong like view on from a like, yes, this is going to work or not, but is an example of something that like, I think we kind of all said we would see, and I think it’s worth worth calling out.


Cameron [00:11:18] Yeah, there’s I think it portends sift wanting to build a closer and potentially more direct relationship with their customer base, right? If you think about how consumers are interacting with Sift now. You don’t know that they exist, right? They’re partnering with e-commerce platforms and their other customers to establish trust and safety score. Those identities as they’re moving through these ecosystems. But the whole point of their platform is that you as a consumer never really know about it. It’s all passive, and that’s a lot of the value is that zero friction layer thing. That’s a common thread with keyless right, keyless looking for as low friction as possible, you know, zero trust multifactor. But in thinking about where those solutions are in-market for keyless right now, whether it’s, you know, password list, single sign on or whether it is their PSD2, you know, SCA solution, I think both of those things illustrate that Sift is probably considering moving much more closely into this customer identity and access management piece or maybe looking about facilitating payments themselves, maybe moving into BNPL, for example. So I think it’s it’s really exciting and portends again a big shift in in how Sift is going to market and that level of direct touch they want to have with their customers, leveraging that tremendous amount of identities they’re already seeing and maybe bringing them to the fore to extract more value from them.


Travis [00:12:49] Yeah, I’m I have nothing to add to that. I mean, I think that’s that’s a really good point on many points on this one. I think that. Should be interesting to see what stuff does this year where we get covered just a few times over the course of twenty one. Obviously, they have a new CEO in there. Jason Tanz move to the chairman position, obviously expecting these guys to potentially make it to the public markets this year or in the near future. So interesting to keep an eye on this if you look at the the landscape. Obviously, we have them and the dominance of the dominant solutions segment of fraud prevention, risk management and then secondary for user generated content moderation. And then they’re acquiring the authentication, which is in that light green. If you’re watching on the webinar, not a lot of congruent solutions in segments here. So I expect to see a little bit more activity across the landscape from these guys over the next year here. Moving on to Plaid Incognito, so maybe yeah. Dave, you want to pick a stuff again?


David [00:13:49] Yeah. I mean, Court Neato, so a couple of interesting things about this deal, you know, a lot of the M&A tends to fall into buckets that we talked about last year, either sort of actor off the zero category where, you know, it’s a gang buster like, you know, multibillion dollar acquisition price or the we don’t disclose the acquisition price. This one was kind of like straddled Stroud alive, but which was, you know, I think they announced it was a $250 million purchase price, right? So not always something we see announced. So Magneto is clearly doing pretty well. Shareholders founders wanted it known that that they were doing well when they sold. But here’s one where we see bad, which sits squarely in the authorization domain now moving up the stack into customer onboarding and identity verification, right? So it’s going to be interesting to see. I mean, last year, identity verification was the blowout category that raised the most money, right? Like we saw multiple unicorns minted. I mean, so cure a whole bunch of others were all doing this. And now we see five moving into the space, a company which you know, is obviously attracted a lot of, you know, investor interest, I think. I can’t remember what their last valuation was. I think it was like 15 billion or something like that. But we see a company that is obviously going to be one of the biggest, most dominant fintech players. I think they’ve kind of cemented that, hey, they’re going to be around their player to watch. They’re going to be in the public markets. You know, IPO is the is is their route at this point. And now in preparation for that, they’re bolting on identity verification services. So, you know, I think it’s a deal worth calling out and again, same same themes that we were talking about last year.


Cameron [00:15:32] Yeah, again, like thinking about a shift towards owning more of that consumer relationship right now, plaid, you know, certainly more of a consumer facing presence than a shift in the sense that let’s say you’re, I don’t know, opening up a fintech account and they’re doing account verification via plaid. There is a bit of a plaid UX that you can hit, so you kind of have a vague understanding that you’re interacting with the Plaid platform. But for the most part, Plaid has not really allowed consumers to interact directly in the sense of inserting themselves into something like the account opening process where they are controlling or creating an identity or account. And I think this cognitive acquisition signifies that they’re looking to involve themselves more directly in those earlier stages of the customer lifecycle, whether it’s through partnership with some of their bank and fintech partners, or maybe striking out on their own into new verticals. Again, you know, options like BNPL immediately come to mind with where you might go with something like a cognitive cell. Really interesting. I think the multiple is is good news for the folks we see out there still battling it out in the ID space and excited to kind of see where Plaid takes this.


Travis [00:16:50] Yeah, and just to my my last kind of thoughts on this one to to add is, you know, we recently was chatting with a company not in the identity space, but a company looking at, you know, shoring up their business against any sort of payment transaction fraud. And they were using plaid for some of the payments, and they wanted to make sure that their system was safe. And they said, Man, we wish Plaid actually had this. Identity verification capabilities rather than having a second vendor is too expensive. I’m assuming that that conversation happens quite a bit with plaid. And so for this bolt on it, it seems like a really nice add on a nice upsell opportunity for a lot of those sales reps over Plaid. And I think that this will do extremely well within their stack for existing customer bases and you can see here across the landscape, they added. Obviously, we don’t cover a lot of fintech on the digital identity landscape here. We balk at a lot of that into the data aggregator side. But you can see the current position for Plaid being the position data aggregators with the secondary positions and alternative credit, financial identity and authentication with the future position from incognito coming in with KYC, ID, verification, proofing, fraud prevention, mobile identity and biometric. So adding a lot on the identity landscape itself makes Plaid a real contender across the border. All right. Let’s go ahead and move to the the last deal here, which is Twilio and Boku. So who wants to kind of kick this one up?


David [00:18:24] That’s Cameron today.


Cameron [00:18:25] Yeah, sure. You know, this one is interesting in the sense that in some ways it is a bit of a strength on strength acquisition, obviously. Twilio. Fantastic market leader When it comes to the mobile identity and device intelligence market segment Boku, you know, we’re a couple of years out from the denial transaction. I think, you know, somewhat disappointed that they weren’t able to make that synergy work more a bit of air had come out of that balloon lately. And I think this is a sign that, you know, maybe looking to retrench a little bit, sell off these assets to Twilio and see what they can do with the remains of that platform on the Twilio side. I think this does portend a further penetration of Twilio into, again the earlier parts of this customer lifecycle. Boku with some of the strength on the billing side, as well as some of these kind of autofill account opening capabilities where we have seen them be out in the market with a competitive product. I think we’re going to expect to see Twilio continuing to identify what are the ways in which they can move out of that space, you know, mobile identity stronghold into other areas of the lifecycle, not just play a part in EDP messaging and SMS and other OTP factors with their off your portfolio and how can they forge a more extensive relationship? Again, moving laterally across that customer lifecycle, becoming stickier and extracting more value because they have that critical touch point with, you know, the end users mobile device. And as we know, mobile only going to become more important and the mobile device can be that anchor for continuing that persistence across, you know, account creation, the ongoing authentication, as well as potentially some identity and access management functions. So again, very excited to see where they take this next.


Travis [00:20:31] Yeah, it does seem that Tullio, I mean, you’re seeing kind of a battle between, you know, the Boku, of course. I mean, all sign pru info bab, right? These mobile identity players looking at extending across either doubling down into the authentication side or building a very strong platform in fraud prevention risk management, right? And because they’re so connected with the mobile device, I think you’re going to end up with probably a real true trust platform, something that can really connect businesses to consumers in a pretty meaningful way. Just like a lot of their products have already, you know, for this acquisition, it it makes sense to me that Boku identity was was sold, and it does make sense that it went to 12. So I think this makes Twilio. It’s a very clear signal to the market that we were serious about this side of mobile identity versus, I think what Twilio goes represent actually mean they’re you know, what they’re focused on right now on authentication and what people know for, you know, this acquisition now Boku. But denial, which is really the initial creation for Boku identity back in December of 2019 for roughly 25 million in equities, plus a lot of incentives to bump it up to, you know, very clear that this asset was, you know, just trying to get it back off the books into another home where it could be successful. Overall, I think it’s a good pick up for Twilio makes a good signal, and it sounds like it. It was a good, good, good sell from a Boku side. All right. Yeah. And then. Great. I know we’re shortening these sessions quite a bit here, so but I do want to bring up some of the things that we are working on at liminal, including some of our latest research. And so if you haven’t already, please take a look at some of the latest research that we’ve published on consumer digital identity, including the consumer digital identity landscape of 2021. Fixing the age insurance conundrum and the life of PI is where we break down this concept of personal identity ecosystems. We’ll be continuing to publish additional research throughout the year. If you have any research topics that you guys think that we should be digging into. Feel free to reach out through our contact form. We’re always interested in hearing your thoughts. And secondly, we’ve recently published several blog posts that we think might be interesting to this audience. The latest being our companies to watch lists where we we listed about 25 different companies that we see as really kind of key figures in the digital identity market for this year. So worth looking at, including nine different startups in that list that we think are really represent a representative of the landscape. And of course, this follows on our typical end of year, beginning of year tradition of seeing how we did it in our past predictions, as well as our future predictions for the year 2020 to. And we have other things to look forward to, including the 2022 Lebanon digital identity landscape, be publishing that in the next couple of weeks here, as well as our research report on reusable digital identity market sizing. This will be the first time that we’ll be going beyond just our research and form in the terms of a normal research report and actually publishing an extensive market sizing report based off of how we view consumer digital identity and the concepts of reusable digital identity evolving over time. And lastly, we have our little summit coming up in early May. The Little Summit is one of the top executives and investors in the space. It’ll be hosted in La Hoya San Diego the first week of May. And if you are interested in applying to come, join us in La Hoya. You can do that directly on our website as well. And so with that, I want to thank my two common guests here, Dave and Cameron. Thanks for joining. Any last thoughts from you guys before we call it a wrap?


David [00:24:46] Or to see everywhere, everyone the where it will be nice to see some humans again after this latest quarantine Typekit.


Travis [00:24:53] Very well, yeah.


Cameron [00:24:54] Seconded, you know, who knows what special guests may appear?


Travis [00:25:01] Are you still pushing for Aaron Rodgers?


Cameron [00:25:03] That’s maybe slightly,


David [00:25:04] even though he just lost in embarrassing fashion.


Cameron [00:25:08] I mean, I think I would like to ask him about that in person, as well as his thoughts on the broader digital identity landscape.


Travis [00:25:14] OK, so you guys turned it applied for the elemental summit and maybe you will meet Aaron Rodgers? All right. Thank you, everybody. Have a good rest your day.


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