Email is an essential tool for personal and professional communication, used commonly across all demographics in this digital age. However, the ubiquitous use of email also renders the mass public susceptible to government surveillance and cyber attacks. In fact, 92% of malware is delivered by email.

The issues of cyber security and privacy have been especially salient in the minds of Americans since 2013, when Edward Snowden infamously leaked information about the National Security Agency’s (NSA) secret surveillance of U.S. civilians.

At the time, Snowden was using a server-based encryption program made by start-up Lavabit to protect his emails from being rifled through by the government. After Snowden fled the country, the U.S. government targeted Lavabit for investigation and demanded that surveillance equipment be installed onto the company’s servers.

As a result, it’s no wonder why privacy concerns have become increasingly important to the general public, but privacy-conscious users have little to no alternatives to using email. With such a lack of substitutes for email in the market, individual end-consumers and enterprises are left to look to new cyber security innovations for ways to make their online communication more secure.

Lavabit ultimately refused to put its encryption program at risk and shut down operations in order to protect their customers’ privacy and their integrity as a cyber security technology from being violated by future government surveillance.

Lavabit took over 3 years to redesign its dark-mail technology from the ground up in order to ensure that its email encryption code was maximally secure. The company re-launched on the same day as Donald Trump’s Presidential Inauguration in January of 2017, a time where email hacking and scandals were especially salient in the U.S. election news.

Lavabit’s new technology, DIME (Dark Internet Mail Environment), was designed to better protect emails from third party intrusions by using end-to-end encryption. The company has also incorporated a new security architecture to protect customers from having their SSL encryption keys handed over to third parties, like in the case of Edward Snowden and the NSA. This hardware security module is completely tamper-resistant and highly effective for storing encryption keys and other classified functions, utilizing self-destruction upon the forced extraction of a key.

Most importantly, this team has shown an unwillingness to compromise their users security and privacy. Thus, in the world of privacy where trust is the binding element of the brand, Lavabit has shown themselves to be true to their mission through-and-through.

The broader cyber security industry is experiencing solid growth with a projected 11% CAGR from 2017 to 2023, which sets the industry on track to reach $251B by 2023. Cyber security has been on the rise since high-profile companies like Wal-Mart and Target have faced major data-breaches on a public stage. Industry reports also expect the email security market to be especially on the rise within the cyber security industry, with a reported 22% CAGR from 2018 to 2023, setting the market on track to reach $18B by 2023. The high growth in this segment of the cyber secutiry market is bolstered by an increasing number of cyber threats and social spam.

The email security market can be segmented by deployment, customer size or verticals. On the basis of deployment, the segments within the email security market include on-premise email security, hosted email security, or managed email security.

On the basis of size, customers are generally segmented as small and medium enterprises or large enterprises. On the basis of verticals, the email security market caters to a wide variety of industries, including oil and gas, manufacturing, healthcare, media and entertainment, and retail, among many others.

Competition within the market is growing quickly, threatening growth within the market. Barriers to entry are low as anti-virus and anti-spam engines are becoming increasingly undifferentiated, resulting in the commoditization of email security technologies.

Lavabit was founded by Ladar Levison and Richard Delgado in 2004, based out of the Dallas/Fort Worth area in Texas. Levison has served as CEO since its founding, bringing his background as a systems engineer to be the leader in developing the technology behind Lavabit’s products. Levison has been very vocal about his commitment to privacy and freedom for customers through email security since his involvement in the Edward Snowden incident with the NSA in 2013.

Delgado has served as COO of Lavabit since its founding, bringing his experience in the financial and health care sectors from his ten year tenure at American Express to the company. Delgado currently also serves as a Partner at ERA Capital Advisors and Managing Partner at Vanguard Venture Group.

In the email security industry, Lavabit faces competition from larger technology incumbents, such as Microsoft, in a addition to more specialized cyber security firms, like Symantec.

The market shows a variance in offerings across two key dimensions. The first dimension is sophistication of technology, which is most simple when only anti-spam/anti-virus features are included and is exceedingly comprehensive when both manual and automatic encryption are offered for protection. The second dimension is existing email infrastructure integration, which is better when a broader range of email platforms are supported across both cloud-based and desktop/laptop clients.

Lavabit has positioned itself to be a leader in technology sophistication, with a history of focus on refining its encryption to be more comprehensive than any other player in the market. The company is also raising funds in order to invest even more into development of its products by growing its technology team, solidifying its differentiation along the dimension of having the most secure code in the market. The company is also aiming to improve its email infrastructure integration by utilizing plug-ins to access a broad range of different email platforms.

Lavabit is also unique in the market because its products are presented as simple yet comprehensive. Meanwhile, its brand is already associated with cyber security because of its involvement in the unfolding of Edward Snowden’s story with the NSA. These aspects of its business make the company better apt to build a recognizable brand in the email security market.

With all of the urgency surrounding cyber security, it is still only just beginning to take-off with end-consumers, while it has already become a part of any enterprise’s basic risk management. This leaves Lavabit in a place in the market with high potential, as it targets both end-consumers in addition to enterprise-consumers.

The investment of time and money that the company has made in developing its end-to-end encryption also seems promising from the standpoint of technological dominance in the email security market.

With plans to monetize by charging a yearly subscription fee, we think the B2C channel could see some limitation on upside adoption. However, if they can win over enterprises the scale of the business could be tremendous, where organizations are used to paying for email.

Additionally, management has shown a resilience and commitment to the business. With a founder and CEO who has proven his dedication to the integrity of the company’s products and brand identity on a public stage, Lavabit could become a big name in the cyber security industry, should their newest technologies prove to be maximally secure and superior to competitors.

At the current $10M valuation cap and signs of already driving re-adoption of their service, we think the upside could be very healthy for investors. It is still early and there is a lot of movement by larger players in the open source / privacy space like Microsoft that acquired open source development platform Github. We would like to see more adoption and clarity of market position before providing a Top Deal rating, but nonetheless, it is quite promising.