Anonomatic is offering equity at a $34.9 million valuation. That’s an eye-popping price given the financial data that Anonomatic provides. The company has not shared 2021 financials, so all investors have to go on is 2020 revenue of just under $200,000. Assuming that Anonomatic’s 2021 revenue was relatively similar, it would imply a nearly 175x revenue multiple, which is much too high. Despite Anonomatic’s assertions that its product is positioned to lead the valuable and growing data privacy market, this price simply isn’t justified without more traction.

Cybersecurity and data security more specifically are becoming increasingly important for companies and consumers alike. There were more data breaches in 2021 than ever before, and moves like Apple’s update to allow users to opt out of tracking by advertisers reflect a growing movement toward anonymous browsing. Therefore, it’s not surprising that the data-centric security market is growing steadily. The global market is estimated to reach more than $17.1 billion by 2028, with a strong 22.5% compound annual growth rate.   

This growth means that Anonomatic’s market prospects are solid, but it’s worth noting that the company is likely to compete for only a small segment of this demand. Many data-centric security tools are focused on encryption and hacking determent, which are different value propositions than Anonomatic’s. The company will be responsible for educating the market about the value of its alternative solution (storing anonymized data that is still useful for analysis). While Anonomatic’s potential market size is relatively large, it may struggle to reach a sizable portion of those buyers.

Anonomatic was founded by Matthew Fleck and Neil Heller, who each have roughly three decades of professional experience. Fleck, Anonomatic’s CEO, has bounced around in various system architecture consulting roles over the course of his career. He apparently designed Anonomatic’s core technology as a consulting project for the Los Angeles Unified School District, then spun out that intellectual property into Anonomatic. Before that most recent period of consulting, Fleck spent a year as a global solution leader at IBM. 

Heller is Anonomatic’s COO. He was a software engineer early in his career, but more recently he held a number of senior sales roles at companies like AeroScout and Stanley Black & Decker. Before founding Anonomatic, Heller spent five years establishing Cisco’s manufacturing Center of Excellence. 

Both Fleck and Heller are experienced professionals with wide-ranging experience in roles related to technology and systems architecture. However, none of their experience seems to be directly related to the development of a data storage software tool, and neither of them appear to have the technical skills to code the product themselves. Instead, engineering work is done by a team of contract developers. That’s not an ideal setup and leaves Anonomatic open to development slowdown or technological risk. Investors may feel that this team is too small and lacks enough direct experience in this industry.

Anonomatic’s product is highly technical, so only experienced security and data engineers are likely to truly understand how it differs from competitors in the market. However, it’s clear that Anonomatic takes a different approach than many data security companies. Many corporations focus on either security measures to deter data breaches or storing fully anonymized data so breaches can’t yield anything valuable. While the latter approach is less risky, it has serious downsides in that companies can’t use the anonymized data for analysis. Anonomatic allows companies to store data anonymously, essentially eliminating the risk of a data breach, while maintaining usable data that can be manipulated and analyzed similar to non-anonymized data. 

This approach is theoretically more valuable than most data security solutions on the market, but it’s hard to say just how much buyers care about this particular value proposition. Regardless, those buyers are making decisions among a number of competitors in this crowded landscape. It seems to be too soon to tell whether Anonomatic has achieved product-market fit and is selling a piece of software that is definitely better than other data security solutions.

Anonomatic is a relatively young company without a great deal of performance data to analyze. The company’s biggest success thus far appears to be its partnership with the Los Angeles Unified School District (LAUSD). LAUSD uses Anonomatic to store 500 million pieces of anonymized academic performance data and health data, which allows it to correlate those data sets and come to useful insights about student outcomes. This analysis would have been impossible with traditional solutions for storing the highly regulated academic and health data. 

In terms of revenue, Anonomatic’s most recent financial reports show less than $200,000 in revenue for 2020 and a net loss of roughly $61,000. Revenues grew by roughly 12% between 2019 and 2020. Investors are probably most curious about Anonomatic’s results in 2021. But that data isn’t available. It seems concerning that Anonomatic doesn’t mention 2021 financial performance at all on its raise page. It’s probably safe to assume that 2021 revenue wasn’t much higher than 2020. That kind of sluggish growth is a bad sign for a company offering a solution that is supposedly far superior to other alternatives on the market. While Anonomatic has made some progress with key clients like LAUSD, the company has little to show in the way of concrete traction or product-market fit.

Anonomatic is a medium-risk investment. The company seems relatively stable, with two full-time founders, a functioning product, and evidence that the product worked for a major use case with Los Angeles Unified School District. But revenue has been low thus far, and Anonomatic may be open to regulatory and legal risk in the high-stakes, ever-evolving landscape of data security. The company also does not have a history of fundraising, which could pose capital issues down the line.

Anonomatic seems to have a solid idea. Anonymized data is preferable to non-anonymized data from a security perspective, but traditional anonymized data limits companies’ ability to conduct important business analysis. So to provide companies with a way to store anonymized data and analyze it is a compelling value proposition. But beyond that core idea, this investment opportunity isn’t very compelling. Anonomatic’s revenue was low in 2019 and 2020, and the lack of any mention of financials from 2021 seems to imply that last year wasn’t much better. The Anonomatic team is small, and while both co-founders have solid business experience, neither seems to have enough technical expertise to be directly involved in building software. It’s too soon to say whether Anonomatic’s differentiation from typical data security tools is enough to win buyers in this highly competitive industry. Lastly, a $34.9 million valuation seems overblown at this level of traction. For all of these reasons, it might be difficult for investors to feel confident about investing in Anonomatic.

Anonomatic has been slow to take off, but the core premise of the business seems strong. Storing anonymized but still usable data could be compelling for a very wide variety of buyer types, and Anonomatic already has a strong proof point from its work with the Los Angeles Unified School District (LAUSD). With Anonomatic, LAUSD is storing 500 million health and academic performance data points on students, all of which are sensitive and confidential. The district can still use this data to conduct important analyses. This large-scale adoption of Anonomatic’s technology is a strong signal that other buyers could soon be convinced to invest in the product. While its growth might be slower than that of other tech companies, Anonomatic has been funding itself from the start and has relatively low operating costs. That means that the company’s business fundamentals are primed for success. With this round of investment, Anonomatic might finally get the capital it needs to scale.

Anonomatic is a data security software company. Its product allows companies to store anonymized data that can still be used for advanced data analysis, solving the dual issues of data security and data usability. Anonomatic’s solution has already been implemented by the Los Angeles Unified School District, which stores 500 million sensitive data points in Anonomatic vaults. That case study, plus Anonomatic’s low operating costs, mean that the company could be well positioned to sign new clients and make solid profits. The market opportunity is significant and growing, and Anonomatic’s version of data security is unusual enough to draw attention, provided consumers prefer its strategy.

But investors should be aware that Anonomatic has grown slowly thus far. Revenue was less than $200,000 for both 2019 and 2020. Its 2021 revenue isn’t shared, but the company isn’t bragging about any large increase. Anonomatic’s slow growth could be due to the fact that it has a small team of two. Both co-founders are experienced professionals, but neither has specific data security experience or engineering capabilities. All of these factors make the company’s $34.9 million valuation seem extreme. Therefore, Anonomatic has been rated a Neutral Deal. 

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written on February 4, 2022.