Silicon Valley venture capital giant Accel has made the largest single investment in its history, leading a US$200-million funding for the Toronto company behind a popular password management software product.
AgileBits Inc., which operates as 1Password, has never taken outside investment in its 14-year history. It is little-known in the Toronto tech community where it is based, despite having millions of users who pay $3 or more monthly for its product, which automatically creates and stores complex passwords for users that they can use to auto-fill login credentials on a range of websites and platforms. Users don’t have to remember all those codes, just one master password to access their vault of login credentials.
But 1Password’s success cracking the enterprise market prompted Accel – an early backer of Facebook, Spotify and Slack, plus Canada’s Hootsuite Media and Lightspeed POS – to invest at least US$140-million. (Other backers include Slack’s venture fund and top executives of Australian software company Atlassian Corp. PLC).
“It’s rare to have a funding round of this size and magnitude and I think it speaks to the opportunity but also the execution of the team,” said Accel partner Arun Mathew, who is joining the Toronto company’s board.
1Password, which started out selling to individuals, has signed up more than 50,000 corporate and government customers since launching its enterprise offering in early 2016, including one-quarter of Fortune 100 firms.
While the parties declined to disclose financial details – other than its enterprise revenue has increased by 300 per cent in two years – industry sources said 1Password revenue is in the high tens of millions of dollars (U.S.) and that the financing values it well north of US$500-million. At least one-third of the funds are going into the company and the balance to the founders, with the new investors getting a minority stake.
Unlike many fast-growing software companies, 1Password has been “extremely profitable since day one,” said Mr. Mathew. “They haven’t really ever spent much on paid marketing or advertising, not a whole lot of people know about them, but I think it’s one of the best stories out of Canada.”
Jeff Shiner, chief executive officer of 1Password, said the company decided to take its first outside funding because “the market is ready [with companies] now certainly more than willing to adopt and roll out an enterprise password manager” to employees.
“It’s something we want to take advantage of. We know how to build a really good product and support our customers really well. [Accel] can help us with other things,” including marketing and sales programs and recruiting talent.
The deal is the latest in a slew of megafinancings of Canadian tech companies this year. It also brings to light that Canada is home to several large bootstrapped technology firms that haven’t captured the limelight like venture-backed firms.
That is likely to change, said Chad Bayne, co-chair of law firm Osler, Harcourt and Hoskin LLP’s emerging and high-growth companies practice, as private capital providers increasingly seek to back profitable technology that have relied on internally generated funds “unlike many of the venture-backed companies in the Bay Area and elsewhere in the U.S. I expect to see more and more of these deals in the future.”
1Password got its start when software developers and friends Dave Teare and Roustem Karimov started a business in 2006 building websites. As a sideline they developed a tool to automatically and securely store information, including passwords, so they could instantly fill out forms, saving time in the development process.
They uploaded the tool to a couple of developer websites and got strong feedback, prompting them to focus on selling their password storage tool. As their business grew, they recruited Mr. Shiner, a friend of Mr. Teare’s, to lead the company in 2012. “I joined because I saw the passion in David and Roustem … and how much they enjoyed what they were doing,” said Mr. Shiner.
The company casts itself as a happy home for down-to-earth, customer-focused geeks. Most staff have irreverent titles: Mr. Shiner calls himself the “chief eliminator of obstacles,” while Mr. Teare’s wife Sara Teare, who oversees finance, human resources and customer support, is “minister of magic.” Other employees listed on its website have such titles as “weaver of webs,” “agile samurai,” “house elf” and “cocoa head.”
“Giving everyone the chance to pick a job title that fits their personality lets us have some fun with a very serious topic,” said Ms. Teare. "When we’re talking with our customers it’s important they know they are talking to people who are here to help them, not just a robot trying to get another checkbox ticked.”
“It’s one of those companies that has not grown in the traditional way and not ascribed to traditional hierarchy,” added Mr. Mathew at Accel. “They want every [employee] to feel they’re an important part of the organization."