When Mahmoud Abdelkader ceded his last company, Balanced, a financial tech, or fintech, firm where he worked as chief technology officer, to longtime rival Stripe in 2015, the surrender meant only temporary defeat.
At the time, Abdelkader was building payments rails for online marketplaces. But solutions to the thorny problem of securely transferring money over the Internet had broader potential than he first presumed, he realized. “It’s not about moving money. It’s about moving value, which is represented by pieces of data, securely,” he says.
That insight formed the foundation of Abdelkader’s next act: the amusingly named startup Very Good Security, or VGS, which he cofounded a year later with Marshall Jones, Balanced’s VP of engineering. (Abdelkader says the name is an homage to Pretty Good Privacy, an influential and at one time controversial data encryption program developed in the ’90s.)
Now VGS is receiving a boost. Investors, led by venture capital firm Vertex Ventures, are pouring $60 million in new funding into the company. Including the latest injection, VGS has raised a total of $105 million to date from the likes of Visa, Goldman Sachs, and Silicon Valley venture capital firm Andreessen Horowitz. (VGS declined to disclose its latest private valuation.)
The data bank
VGS acts like a bank, except it holds people’s data. Keeping those records under virtual lock-and-key, the firm swaps in dummy data for its customers, often startups, to store as placeholders on their own systems. (Wonks call this data “tokenization.”)
Eventually, VGS’s customers have to offer services to customers of their own, like meal delivery or payments, for instance. That’s when they loop in VGS, as a proxy, to complete the transactions with the proper information.
Hundreds of customers have taken VGS up on its offer to eliminate the headache of securing customer data. The company’s first notable taker was Mission Lane, a business formerly called LendUp that used the technology to issue virtual credit card numbers. More recent customers include fast-growing fintech firms like DoorDash, the meal-delivery service, and Brex, the corporate card challenger.
“You do not need your data, and the liability that comes with it, in order for you to be able to achieve your business objectives,” Abdelkader says. He points to the hassles of regulatory compliance and warding off hacks as unnecessary encumbrances on businesses.
A compliance accomplice
Jonathan Heilinger, the partner at Vertex Ventures who led the funding round, said he first learned about the company after an advisor to the fund, Yunfang Juan, an early engineer on the advertising teams at Yahoo and Facebook, raised it to his attention. The recommendation led to Vertex becoming Very Good Security’s earliest investor in 2016.
Heilinger says he’s enthusiastic about the market potential for the company. Very Good Security operates “at the intersection of two high growth multibillion dollar markets: data security and compliance,” he says. “So, we’re doubling down.”
Annual revenues from so-called tokenized mobile payments, the data-dummying technique that is VGS’s specialty, are expected to more than double to $40 billion by 2024 from $17 billion today, estimates Juniper Research, a market scrutinizer.
“Our biggest challenge is getting people to think a bit differently about the problem,” says Peter Berg, VGS’s vice president of business development and strategy and the former head of Visa’s venture capital unit. “For forever, they’ve just been building thicker walls and wider moats and fancier drawbridges, but they haven’t fundamentally rethought the problem.”
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