Despite the recent attention on digital privacy, venture capital investors have mostly stayed away from companies that offer virtual private networks, which allow users to hide their online tracks.
Now there is one big exception.
AnchorFree, the maker of Hotspot Shield, one of the oldest VPN apps, said Wednesday that it had raised $295 million. The round brings AnchorFree’s total funding to $358 million, far outpacing any of its competitors.
The company, based in Redwood City, Calif., is the latest tech start-up to secure a giant investment. Fund-raising rounds of over $100 million have become more commonplace than ever this year.
The investment in AnchorFree suggests that the VPN category is becoming more mainstream. Investors previously avoided it in part because relatively few users have adopted the technology. In addition, some of the networks are not as secure as their companies claim.
But after events like the Equifax hack, the repeal of net neutrality rules and Facebook’s Cambridge Analytica scandal, downloads of Hotspot Shield spiked.
It’s a little perplexing, since a VPN would not have protected people affected by any of those events. David Gorodyansky, the founder and chief executive of AnchorFree, said they had pushed typical consumers to take privacy and security more seriously.
Hotspot Shield has been downloaded 650 million times. Lately, it has averaged 250,000 downloads a day. For most of the summer, it has been the top-grossing app in its category in the Apple App Store, and in the top 50 over all, according to the app-ranking site App Annie. AnchorFree’s other apps, Betternet and HexaTech, ranked high on the App Store charts this week, as well as competing VPN apps owned by Norton, McAfee and a variety of obscure companies.
“Two years ago, there were no privacy or security apps in the top 100,” Mr. Gorodyansky said. “There’s been a massive shift.”
Virtual private network technology is open-sourced, or freely available to use, making it easy for anyone to enter the market. There are hundreds of VPN apps. Some, including AnchorFree, have built additional technology on top of the open-source software.
Some free services log users’ browsing data and sell it or turn it over to governments when asked. Others say they are based in the United States or the Cayman Islands but actually operate out of countries with censorious governments.
Still others obscure what a VPN can actually protect people from.
“They are marketing themselves as ‘sprinkle our security or privacy dust on your device and suddenly it will become private and secure,’” said Eva Galperin, director of cybersecurity at the Electronic Frontier Foundation, a nonprofit focused on digital rights.
AnchorFree made for an attractive venture investment because the technology it has built on top of the open-sourced VPN software makes it faster than other VPN services, said Sujay Jaswa, a partner at WndrCo, the investment firm that led the latest round of financing. Many of AnchorFree’s competitors license its technology, including Bitdefender, Dashlane, Kaspersky and McAfee.
AnchorFree’s tech is also prevalent in smartphones and the products of telecommunications companies. Samsung Galaxy phones come loaded with AnchorFree’s VPN software; Verizon and Telefónica license it as well. The companies split revenue earned from anyone who becomes a paying customer.
The company said it has been profitable since 2010. It has just 110 employees; 80 are engineers, and it has no salespeople. Hotspot Shield is free, but a small percentage of users pay a monthly fee for extra features, including faster internet speeds, the ability choose their internet server, and added protection from phishing, malware and spam. The company recently added a product specifically for businesses.
In 2017, the Center for Democracy and Technology, a nonprofit that promotes digital rights, asked the Federal Trade Commission to investigate AnchorFree and Hotspot Shield, accusing the company of deceptively redirecting users to certain websites and sharing data.
AnchorFree, which has denied the allegations, declined to comment on the investigation. But after the criticism, the company rewrote its terms of service, to avoid legalese, and AnchorFree began to release transparency reports. The first one, issued in November, showed the company received 81 requests for user data from government agencies in the first 10 months of 2017 and 79 in 2016. AnchorFree complied with none of the requests.
Hotspot Shield does not log any of its users’ activity, Mr. Gorodyansky said. As a result, the company could not provide the data to the government.
“Our conversations are super simple,” he said. “We have no data. End of story.”
The latest round of funding comes from WndrCo along with Accel Partners, 8VC, SignalFire and Green Bay Ventures. AnchorFree would not disclose its valuation or revenue.
AnchorFree said it would use the capital to expand into related areas, such as security for internet-connected devices (say, smart doorbells or thermostats). The company will also pursue acquisitions, potentially of companies with sales teams in place.
An earlier version of this article misidentified one of the AnchorFree competitors that licenses its technology. It is McAfee, not TunnelBear, a VPN service that McAfee acquired this year.
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