Toronto’s 1Password became a leading password management service by spreading virally through word-of-mouth recommendations from consumers that used its app to store the keys to their increasingly digital lives. Now its success at cracking the corporate market has landed 1Password a record-setting investment.
On Wednesday, 1Password said it raised US$620-million from some of the top names in American technology, business and entertainment. It’s the largest venture capital, or VC, funding by a Canadian company, eclipsing Wealthsimple Technologies Inc.’s $750-million raise in 2021. Half the proceeds will go to 1Password and the rest to employee shareholders.
The deal values 1Password, officially named AgileBits Inc., at US$6.8-billion, making it one of Canada’s most highly valued private technology companies and worth more than all but five tech companies on the Toronto Stock Exchange.
The funding was led by San Francisco’s Iconiq Capital, the family office for tech luminaries including Mark Zuckerberg, Sheryl Sandberg, Jack Dorsey and Chamath Palihapitiya, plus KKR & Co. co-founder Henry Kravis and James Murdoch. Three other U.S. private capital firms are in the deal: Tiger Global, a prolific investor in Canada’s tech sector, Lightspeed Venture Partners and Accel.
The 1Password deal also has investment from celebrities including actors Robert Downey Jr., Chris Evans, Scarlett Johansson, Matthew McConaughey and Canadian Ryan Reynolds, musicians Justin Timberlake and Pharrell Williams, plus General Motors chief executive officer Mary Barra GM-N and former Walt Disney Co. CEO Robert Iger DIS-N.
Shopify, Slack executives join $100-million financing of Toronto’s 1Password as valuation hits $2-billion
The deal comes on the heels of a record-smashing 2021 for the Canadian tech sector, when domestic startups raised $16-billion in VC, according to preliminary data from Refinitiv. That is 60 per cent higher than the prior inflation-adjusted high set in 2020.
While the 1Password deal is unprecedented by Canadian standards, its size is more common in Silicon Valley, as private tech companies continue to command huge valuations despite sagging share prices for their public peers. The deal wouldn’t have cracked last year’s list of 25 largest VC deals in the U.S.
1Password has been profitable since its early days and “we don’t need the funds,” said CEO Jeff Shiner in an interview. He described the cash influx as “courage capital” to spend on product, hiring and acquisitions. It also sets 1Password apart in a crowded field of rivals including LastPass and Dashlane.
1Password generates US$150-million in annualized revenue, up from US$120-million six months ago, and plans to double its 570-person staff this year. Until its first outside financing by Accel in 2019, 1Password did no sales or marketing but had “a rabid customer base of two to three million users” that it had picked up by word of mouth, said Accel partner and 1Password director Ethan Choi.
Arun Mathew, another Accel partner and 1Password director, said its user base spread to businesses in a “bottoms-up fashion,” as consumers brought it into their workplaces to such an extent that companies began signing up for enterprise accounts. 1Password has more than 100,000 corporate customers – up twofold since late 2019 – including Under Armour UAA-N, Shopify SHOP-T, IBM IBM-N and Slack.
Revenue from corporate customers is growing 70 per cent annually and accounts for more than half the total. “To have a security product that penetrates inside an organization virally by itself, that is a dream for chief information officers” accustomed to dealing with less user-friendly cybersecurity tools, Mr. Choi said.
Iconiq Growth founding partner Will Griffith said in a statement that after speaking with more than 100 technology executives and developers, “We were impressed by their overwhelmingly fierce passion for 1Password’s ability to balance strict security standards with a profound understanding of how humans behave.”
1Password was founded in 2006 by developers and friends David Teare and Roustem Karimov and partners Sara Teare and Natalia Karimov as a business to build websites. On the side they developed a tool to store information including passwords so they could automatically fill forms and save time. The product was an early hit on app stores as Apple and Android smartphones began proliferating globally and, in 2012, Mr. Shiner, a friend of Mr. Teare’s, joined as CEO.
1Password’s product automatically creates and stores complex passwords for users so they can auto-fill login credentials across websites and platforms. Users only have to remember one master password to unlock their codes. The product protects passwords and also tokens, keys and certificates that guard confidential information underpinning digital infrastructure for corporate clients. A basic individual plan costs $2.99 monthly.
“As much as the world has changed over the last 16 years, one of the few constants has been how passionate our customers are,” said David Teare said in an e-mailed statement. “Our dedication to security and privacy while solving a real problem in a simple and accessible way really struck a chord.”
In 2019, the company decided to raise capital to help recruit a “world-class” executive team and put a concerted effort into winning business customers, Mr. Shiner said. It hired seasoned executives to lead product, technology, finance, revenue and marketing, and built a 100-person team to pursue enterprise deals. It was a big change for a company that portrayed itself as a happy place full of cheerful, down-to-earth, customer-focused geeks, with irreverent, self-chosen titles such as “minister of magic,” “weaver of webs, “agile samurai” and “house elf.” While newer executives kept “chief officer” titles, Mr. Shiner still calls himself “chief eliminator of obstacles” and his Glassdoor rating from employees is 98 per cent.
The financing is a big win for Accel. Its US$200-million investment in 2019 was Accel’s largest single deal (it had previously backed Facebook FB-Q, Spotify, Slack and Canada’s Hootsuite and Lightspeed Commerce LSPD-T), valuing 1Password at US$1-billion. Accel led subsequent US$100-million funding of 1Password last summer at twice the valuation.
Asked how 1Password’s valuation could have increased nearly 3.5-fold six months hence, Lightspeed partner Anoushka Vaswani said in an interview, “Frankly … [Accel] got in at a great deal. … Six months ago we would have been willing to invest at a higher valuation than it got.” Mr. Mathew said, “The valuation is a reflection of the market opportunity, which has only accelerated over COVID” as companies increasingly digitized operations.
Ms. Vaswani said the soaring valuation was justified by 1Password’s profitability, its revenue growth acceleration – uncommon for a company its size – and its opportunity to win more business from existing corporate customers and new ones, including the three-quarters of Fortune 100 firms that aren’t clients.
Gaining visibility with corporate giants was one goal of the financing, Mr. Mathew said. “Being seen as a company that is well-capitalized is important in this market and communicates a level of strength … that gives them a level of comfort” to sign up.
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