Founder Jim Brock, 51, and co-founder Jason Beatty, 42, met at NextSpace in downtown Santa Cruz and grew the startup to the point where a big player took notice of their product, PrivacyFix, for Google Chrome and Mozilla Firefox.
AVG Technologies, an Internet security firm based in the Czech Republic, bought PrivacyChoice in May for an undisclosed sum. Since then, Brock and Beatty have been working on privacy products for AVG's 155 million customers.
The app works on iPhone 5, and the team is working to fix an issue that arose for the iPhone 4S.
Rather than pitch a product to venture capitalists or seek revenue from advertisers, Brock took a different route. His strategy was to create a database on privacy policies of 5,000 websites and 1,200 tracking companies and rate them on how well your privacy is protected.
"Companies license that from us," he said. "That revenue allowed us to build the consumer products.
"It was smart sustainable revenue," Beatty said.
PrivacyChoice became profitable while in startup mode and offered PrivacyFix to consumers for free.
AVG, the new owner, takes a similar tack, providing basic security services to users for free and charging for premium services.
Brock, who lives in Santa Cruz, discovered how far tracking technology had advanced when his wife had a scary experience with targeted online advertising.
Then he realized the process of "opting out" usually meant companies kept collecting personal data on your online activity. They know if you're in the market for a new car and what you're buying at the drugstore.
"I think that is something people don't necessarily understand," Brock said.
Finding and changing the privacy settings can be time-consuming, depending on where on the website those settings are located and how many websites are tracking your activity.
"Facebook puts in tools to control that data, but they don't make it easy to find it," Beatty said. "They want your data to leak out so they can advertise to you." The PrivacyFix color-coded dashboard simplifies the process, monitoring Facebook, Google and LinkedIn on one easy-to-read page.
In the latest version, a green checkmark signifies the most private setting, a green exclamation point indicates you've chosen less privacy, and an orange exclamation point means something needs attention.
"We don't dictate choices for you," said Brock. "We're helping you understand what your data is worth to Facebook and Google and why your data has value in this economy."
Brock found NextSpace, the co-working site downtown, a good place to hatch PrivacyChoice.
That's where he met Beatty, 42, who had already built and sold a software company.
"He sent out a request asking for expertise in security," Beatty said. "We kept meeting for lunch."
Beatty agreed to put aside his own projects to concentrate on coding for PrivacyFix while Brock focused on product features and design.
"A startup takes everything you have," Beatty said. "You have to completely focus to make it your priority."
He had no desire to drive over the hill to build the company in Silicon Valley.
"We wanted to do it in Santa Cruz," he said. "The classic argument that talent is not in Santa Cruz is not true."
When more help was needed, Brock called in Eric Whitefield, someone he knew from a previous job, as a full-time contractor. Other contributions were made by half a dozen specialists located around the world from Texas to Belarus and interns from UC Santa Cruz.
Being at NextSpace made it easy to get feedback on the PrivacyFix product.
Spencer Lindsay, a digital designer who knew Beatty, volunteered as a beta tester.
"He's very good at security," Lindsay said. "I was queasy with the way companies can make money off your data so I found their project really interesting."
He was impressed how the designers used graphics to move from a version with too much information to one that he considered "very friendly."
Other privacy tools were available, but many were developed by hobbyists or nonprofits that did not have support.
"We were doing it for a living," Beatty said, "That's what it took to get it in front of the big anti-virus companies."
Making the sale
AVG's head of corporate development was someone Brock did not know, but he discovered they had many close connections in common.
"We had lunch at one point and almost immediately realized there was a tight alignment in our companies' philosophy about how to deliver better privacy to consumers," Brock said. "Things moved quickly from there."
For Beatty, the sale was a proud moment.
"That's the dream," he said. "Like getting your book published, your album on the charts, winning the surf contest."
But it did not mean retirement.
"When you get acquired, you don't stop the next day," said Beatty. "You probably work harder."
Brock, Beatty and Whitefield joined AVG and kept their office in Santa Cruz. They added Jeff Lyon, a full-time contractor working at NextSpace to the team, and gained access to AVG's teams for quality assurance and design in San Francisco.
"We have a lot of resources now in all these different disciplines," said Brock, noting the improvements made for the new mobile app.
"In this economy, tech has done very well," Beatty said. "A dozen other startups I know of. We're part of this renaissance."
Follow Sentinel reporter Jondi Gumz at Twitter.com/jondigumz
At a glance
WHAT: PrivacyFix, a free product to let consumers choose their level of online privacy. DEVELOPED BY: PrivacyChoice in Santa Cruz FOUNDER: Jim Brock, co-founder Jason Beatty ACQUIRED BY: AVG Technologies INFORMATION: www.privacyfix.com