CyberFortress, a San Antonio startup whose technology aims to protect e-commerce companies from cyberattacks, announced Tuesday it had secured $3 million in venture capital. The deal was led by New York-based private equity firm Greycroft and Austin venture capital firm LiveOak Venture Partners.

Founded by former Rackspace employees Huw Edwards and Michael DeFelice,  CyberFortress will use the funding to hire product developers and expedite its formal launch in Texas, expected in early 2020. Edwards is the company’s CEO and DeFelice is its chief technology officer.

The company’s business model is built on the idea that small- to medium-sized businesses are more vulnerable to cyber threats than their enterprise counterparts, and e-commerce firms, in particular, can suffer significant revenue loss when their systems are down because of cyberattacks or other computing issues. To solve this, CyberFortress set out to build a cyber insurance platform that would insure e-commerce companies against the risk of the downtime from cyber events.

Downtime for a small e-commerce company can amount to months where it is not collecting revenue, threatening a business’s viability, Edwards said.

“When small businesses suffer a cyberattack their whole survival is dependent on ‘Do they have enough cash on hand? Can they make payroll?'” he said, adding that today’s cyber insurance model has failed most small businesses.

In anticipation of its product launch, CyberFortress will add to its team of eight, but Edwards declined to say how many employees he expects to add.

Formed in 2018, CyberFortress spun out of Jungle Disk, once a subsidiary of Rackspace that provides cyber services for small to medium-size businesses.

CyberFortress’ tech-enabled insurance business centers on addressing the long applications companies must fill out to file cyber insurance claims, dealing with a complex web of coverages from multiple parties, and slow payouts.

For Venu Shamapant, a founding partner at LiveOak, the opportunity to invest in CyberFortress was an exciting one because of the uniqueness of the product and the founders’ experience in meeting the cybersecurity needs of small to medium-sized businesses. Like the founders, a handful of the other CyberFortress employees also worked at Jungle Disk.

“We really liked this team’s background in serving the small-medium business customers,” Shamapant said. “These guys have served small-medium businesses and their needs for a long time and brought a level of understanding to what’s needed in that market that is very unique.”

In June, CyberFortress rolled out its free and publicly available Downtime Risk Assessment, which uses machine learning to score an e-commerce company’s risk of suffering downtime.

Greycroft, the private equity firm that co-led CyberFortress’s seed fundraising round, includes a number of insurance technology companies in its portfolio. CyberFortress’s approach, however, is unique, the investment firm said in a press release. Its claim payments will be automated, and the company’s data also will be an asset.

“These characteristics are unusual in the commercial insurance universe,” said Will Szcerbiak, the lead investor for Greycroft in the deal, “and we believe they will set CyberFortress on a path to scale.”

The San Antonio area is an increasing hotbed for startup activity, Shamapant said. His VC firm has previously invested in local cybersecurity software startup Infocyte. LiveOak has been spending more time in San Antonio than it had in the past to focus on investing in Texas entrepreneurs, Shamapant said.

He credited much of the city’s entrepreneurial momentum to the outgrowth of Rackspace. As Dell Technologies has produced entrepreneurs in Austin, Rackspace has seen many of its alumni form tech-centric business ventures in San Antonio.

Amanda Keammerer, who heads CyberSecurity San Antonio for the San Antonio Chamber of Commerce, said the deal is further evidence the city is a “global cyber hub.”

“San Antonio is bursting with revolutionary ideas, and this team is on track to change the insurance game,” Keammerer said. “Sixty percent of small businesses go out of business within six months of a cyber attack – CyberFortress is doing its part to ensure that entrepreneurs and business owners are insured against known and unknown threats.”

JJ Velasquez

JJ Velasquez is the San Antonio Report's audience engagement editor.