Big Deal: Symphony sounds out investors

News that Symphony, a US-based secure communication technology developer backed by internet technology group Alphabet, is raising up to $200m at a $1bn+ pre-money valuation, shows the instant messaging space is still fruitful ground for startups.

The company was founded in October 2014 when a group of financial services firms combined to acquire Perzo, the developer of a messaging service for financial traders. They subsequently relaunched the platform as Symphony with $66m of series A funding in order to establish a dedicated, secure service for the financial industry.

Symphony is looking to raise between $125m and $200m, according to the Wall Street Journal, which stated the Singaporean government and growth equity firm General Atlantic are likely to join the company’s existing investors, which have so far provided it with about $170m in just over two years.

BofA Merrill Lynch, BNY Mellon, BlackRock, Citadel, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Jefferies, JPMorgan, Maverick, Morgan Stanley, Nomura and Wells Fargo were the initial investors, before internet technology provider Google, a subsidiary of Alphabet, backed a $100m round in October 2015 that also featured financial services providers Natixis, Societe Generale and UBS, and VC firms Merus Capital and Lakestar.

The biggest worldwide success story in the online messaging space has been China’s Tencent, which has built an extensive online empire linked to its WeChat messaging app, but WhatsApp – acquired by Facebook for $19bn in early 2014 – as well as Viber, which was bought by Rakuten for $900m, and Line, which went public this year in a $1.1bn IPO, have also achieved big returns for investors.

The prospective funding round will make Symphony one of several instant messaging unicorns – venture-backed companies with a 10-digit valuation – but it is perhaps notable that in contrast to the first wave of big exits above, many of this group are directed towards or were formed to cater to specific customer bases.

Slack is probably the most analogous name in the space, the company having developed a workplace messaging platform with more than 4 million daily users, just under a third of which pay for the service. It has raised about $540m from investors including Alphabet and was valued at $3.8bn as of its last round, in April this year.

In contrast, Snap built a youthful audience around its Snapchat app with a disappearing picture gimmick and has parlayed it into a more diverse base that now totals 150 million daily users that communicate through and share modifiable pictures and videos. Snap is said to be lining up an IPO next year at a $25bn valuation and is also diversifying into hardware, the first product being its Sunglasses, which enable people to film short videos that are then uploaded on to their accounts.

India-based Hike meanwhile may seem like an old fashioned messaging service but it has differentiated itself by prioritising privacy, making it attractive to teenage users eager to avoid monitoring by a socially conservative society. Hike, which had 100 million active users as of January 2016, was valued at $1.4bn in an August round in which it raised $175m.

Symphony’s niche is obviously the financial services industry, where its secure messaging can be used by traders and bankers to communicate with colleagues and clients, but it is looking to expand its potential customer base.

The company has already built up the platform by adding features like voice and video chat options, and reportedly intends to use the capital to support an expansion of the service from the financial services sector to other industries where confidentiality is a priority, beginning with healthcare but branching out into government, science and education.

Symphony’s focus on privacy makes it a viable player in several areas and interestingly, despite also focusing on the workplace, it may not have a great deal of overlap with Slack, which is lauded more for its relative ease of use. Moreover, increasing tension over government monitoring across the globe may also create a path into the mainstream, which would hypothetically make a $1bn valuation look like a steal.