Michael and Richard Hyatt have acquired a majority stake in Mississauga-based DataStealth, an enterprise cybersecurity firm that helps banks and hospitals protect their data.
For the brothers—both successful Canadian tech entrepreneurs-turned-investors who previously built, scaled, sold, and exited Toronto-based Dyadem and BlueCat in deals totalling more than $1 billion—the transaction marks a return to operations.
The Hyatts believe that they could have their “next big thing” with significant ownership of an efficient and fast-growing cybersecurity business at a time when cyber attacks are on the rise.
“We’re back, we’re doing something big, and this is super important to us,” Michael Hyatt told BetaKit in an interview. “We’ve now picked a horse and we’re all in on it.”
The Hyatt brothers’ majority stake investment closed earlier this month. Hyatt declined to disclose the price tag.
Speaking to the appeal of bringing on the Hyatts as investors, DataStealth co-founder and CEO Ed Leavens noted the pair’s experience building large, successful software companies, complementary skill sets, and willingness to “roll up their sleeves.”
“They took BlueCat to $100-million-plus in annual revenue, profitable—everything that we want to do, they just did this, and they did it twice,” Leavens told BetaKit in an interview. “We have a very solid foundation … We decided that we wanted to really grow, and [that] we needed some expertise, and we found our expertise.”
Founded in 2014, DataStealth aims to help large businesses protect their most sensitive data and documents. Built on its patented technology, the company sells a suite of products that tap into organizations’ networks to discover, classify, and protect data by tokenizing, encrypting, or masking it. DataStealth caters to a variety of industries, including telecommunications firms, financial institutions, insurance firms, and healthcare organizations.
According to Leavens, while other firms offer products that look like DataStealth’s offerings, what sets DataStealth apart from other players is its ease-of-use and speed of deployment. “The difference isn’t in what we do necessarily, it’s more about how we do it,” he said.
“It’s very simple—the technology just works,” added Hyatt. “You can install this product with no agent, no code, nothing. It just works.”
Hyatt was first introduced to DataStealth after one of the startup’s senior leaders asked him for advice. When Hyatt lent a hand and peeked under the hood, he said he was shocked at what he found: a profitable company with great technology, solid growth, strong gross margins, no debt, and limited outside capital, that was generating over $10 million in annual revenue.
“The amount of companies that are growing beautifully that have profit and no venture capital [funding] is incredible,” said Hyatt. “It’s very rare.”
Prior to the Hyatt brothers, DataStealth had just one external investor: a majority shareholder named Abe Schwartz. According to Leavens, he and DataStealth co-founder and CIO Marc Carrafiello used a ‘shotgun clause’ to buy out Schwartz for nearly $7 million, or $1.16 per share, and then sold a portion of Schwartz’s stake to the Hyatt brothers in a separate transaction.
Per an Ontario Superior Court of Justice ruling obtained by BetaKit, Schwartz initially took the position that this notice from Leavens and Carrafiello was improper and declined to respond, and pursued other legal action. However, an Ontario judge ruled in May that by not exercising his right to buy out Leavens and Carrafiello at the same price they offered for his stake, Schwartz accepted their offer, enforced the sale, and dismissed other issues brought up by Schwartz.
Speaking to DataStealth’s use of this shotgun clause, Leavens said, “I think that shotgun or buy-sell provisions in shareholder agreements are common, and we had an opportunity to take advantage of ours, so we did. That’s really all it was. And I think that we saw a different future.”
DataStealth has retained its management and roughly 45-person team as part of the deal. Per Leavens, the company’s leadership still holds a “significant piece of equity” in DataStealth.
“We decided that we wanted to really grow, and [that] we needed some expertise, and we found our expertise.”
– Ed Leavens, DataStealth
Hyatt has become executive chairman, and plans to focus his attention on DataStealth’s sales and go-to-market efforts, while Richard, who has also joined the board, is working with the startup’s engineering team.
“This is not a passive investment,” said Hyatt. “We’re working side by side with the executive team to help them grow and scale the business.”
Over the next few years, Hyatt said that their focus will be on scaling DataStealth’s business without taking on additional outside capital. He sees plenty of potential for DataStealth.
“Right now, we have so much runway,” said Hyatt. “Cybersecurity is so big. We think this outcome could be another BlueCat.”
This article originally appeared on BetaKit on November 1, 2023 and was authored by Josh Scott.