Forter raises $300M on a $3B valuation to combat e-commerce fraud

E-commerce is on the rise, but that also means the risk, and occurrence, of e-commerce fraud is, too. Now, Forter, one of the startups building a business to tackle that malicious activity, has closed $300 million in funding — a sign both of the size of the issue and its success in tackling it to date.

The new funding, a Series F, values Forter at $3 billion — notable not least because the funding is coming only about six months since Forter’s previous round, a $125 million Series E that valued it at over $1.3 billion.

Tiger Global Management is leading this latest equity infusion, with new backers Third Point Ventures and Adage Capital Management, and existing investors Bessemer Venture Partners, Sequoia Capital, March Capital, NewView Capital, Salesforce Ventures and Scale Venture Partners, also involved.

The plan will be to use to the money to expand Forter — founded in Tel Aviv and now based in New York — geographically, bring more functionality into its product and explore adjacent areas where Forter might expand its capabilities, either organically or by way of acquisition.

Forter today focuses mainly on identifying fraud at the point of transaction and building an AI-based platform that “learns” more behaviors to improve its accuracy; it also builds models that keep more people transacting and helps bring down the number of “false positives” where activity that appears suspicious actually is not.

One area on its roadmap for expansion is remediation after the fraud occurs, said Liron Damri, Forter’s co-founder and president.

“Our vision is to serve the merchant as the go-to trusted partner for everything, so remediation is definitely on our roadmap,” he said of potential acquisition targets.

Damri, who co-founded the company with Michael Reitblat, CEO, and Alon Shemesh, chief analyst, said in an interview that the startup — which works with some 350 large customers like Priceline and Instacart and a growing number of service providers like FreedomPay and Flutterwave, altogether seeing some $250 billion worth of transactions globally last year — wasn’t proactively looking for more money.

“All we wanted to do was go back to run the company,” he said. “But in the past six months we’ve seen such a great momentum, doubling revenue and ARR, and seeing our customer volumes grow.”

That led to a lot of investors proactively reaching out and asking questions, he continued. He described Tiger as a “kingmaker” in the category of e-commerce, so it was an easy decision to make, and gave it the “gas” it needed to take its next growth steps.

E-commerce has been one of the major technology growth stories of the last year, fueled by a rush of consumers and businesses playing out their lives online at a time when it has been harder, and in some cases impossible, to transact in person.

While we have definitely seen a lot of growth, and growing sophistication, in the number of tools on the market to combat cybercrime, it’s in some ways an ouroboros of a problem: The more transactions that are made, the more there are that need to be monitored for suspicious activity. And in any case, fraud in e-commerce is not exactly going away. It’s estimated that it will cost retailers some $20 billion in 2021 and is always on the rise.

Forter got its start in 2013 focusing first on monitoring activity on sites wherever customers happened to be to identify suspicious behavior — a sign that it might be a bot or someone on an illicit spending spree racking up a lot of items in quick succession — with the bigger concept being to build a network of activity from which to learn and help make more informed decisions over time.

In more recent years, the essence of the issue has expanded somewhat, and also grown more sophisticated. As companies have grown their businesses to reach beyond early adopters and core audiences, and into a more “omnichannel” environment beyond basic check-outs on their own sites, so too have the kinds of consumers coming to shop.

This has meant that traditional “signals” of legitimate buyers no longer were the same as before — a predicament that really rose in profile in the last year, as many newcomers came to e-commerce for the first time during the pandemic. In fact, Damri told me that in 2020 there were seven times more “newcomers” to sites than in 2019.

So with most of the flagging of suspicious activity coming up at the point of transaction, Forter expanded to analyzing activity there.

As with a recent acquisition of Stripe’s, Bouncer, to build out its own anti-fraud product, a large part of Forter’s attention these days is on providing tools to companies to identify suspicious purchasing, but even more than that, to make sure that the many occasions that might look suspicious are not, to help reduce the amount of “cart abandonment” and increase conversions.

The old way of doing things, Damri said, involved “thousands of rules and applying suspicion on everyone. You were guilty unless proved otherwise.”

Using its AI engine and some risk analysis (not unlike the kind that, say, an insurance or loan provider might apply in their businesses), Forter turned the proposition on its head.

“We wanted to approve as much as possible. We wanted to gradually increase the trust you have of your own customers. We changed the sentiment and approach… especially in areas that were neglected, such as those who saw significant changes in life,” Damri said. “This was extremely important as COVID-19 hit.”

Forter’s risk tolerance model, it seems, has so far proven out. Damri said that its algorithms applied reduce the total number of declines by 80%, but also reduce the number of chargebacks — one indicator of a mistake — by 60%.

This implies that it’s blocking more of the “wrong” kind of purchases, and letting through more of the legitimate ones. (That is, he pointed out, in addition to a few bad actors Forter intentionally lets buy things, just to learn how they operate. Damri referred to this as “paid-tuition.”)

Risk-based approvals, coupled with algorithms to learn what is truly bad, has resonated with customers, and investors.

“With the unprecedented rate of digital transformation and the fierce competition in creating the slickest user experience, superior fraud prevention plays an ever more critical role in e-commerce revenue growth” said John Curtius, a partner at Tiger Global Management, in a statement. “After we talked with dozens of customers of every relevant solution in this space, it was very clear to us that Forter is the clear leader in performance and scale.”

“As a longtime investor, it’s been incredible to see Forter’s ascent,” added Ravi Viswanathan, NewView Capital. “It’s a testament to the leadership team’s vision and execution in allowing merchants to provide the seamless experiences customers expect and to be able to accept as many transactions as possible, while still accurately identifying and blocking fraud.”

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