What’s Really Happening with VC investment in Cybersecurity

Paramount Assure
Jul 25, 2017 · 6 min read

I haven’t seen such polarising information on Cybersecurity in a good long while! One day the news channels are waxing eloquent about how VC’s can’t get enough of cybersecurity startups and the next day there’s lamenting about why investment has gone down drastically. So what is really happening with the Cybersecurity startup ecosystem. Is it blooming or are the prospects gloomy?

Since data and not metaphysics is often the answer to questions of this kind, we decided to look at the numbers related to cybersecurity in the VC circuit. According to research from Gartner, Inc. the world-wide cybersecurity market topped $75 billion in 2015 and IT security spending will soar to $101 billion in 2018, and hit $170 billion by 2020, according to a recent story in Investors Business Daily. This doesn’t seem to suggest any slowdown in terms of VC funding in cybersecurity. But if you were to look at the funding cybersecurity startups received by each quarter of 2016, the conflicting news make some sense.

After riding on the huge amount of interest cybersecurity startups saw in the last quarter of 2015, the first quarter of 2016 saw a little slump in February.

“Investors are looking at balance sheets and saying, ‘You raised $100 million and you have nothing to show for it?’” said Promod Haque , senior managing partner at Norwest Venture Partners in an interview with Fortune magazine in February 2016.

This remained the situation for the second quarter too, and things were not helped by the fact that not many cybersecurity companies were going the IPO route. The third quarter of 2016 saw renewed interest, but in Q4 the slump reared it’s head again. According to Cybersecurity Ventures after strong growth in Q3 16, cybersecurity funding dropped by more than half in the final quarter of 2016. According to PwC, the market saw $370 million in funding — a strong figure, but nowhere near what the industry saw in 2015. But despite these reports, the investments that happened through the course of 2016, weren’t meagre numbers at all.

EverCompliant, closed a $9.5 million Series A financing round led by Arbor Ventures with additional support from Carmel Ventures, StarFarm Ventures and Nyca Partners. ForeScout reported more than $125 million in 2015 revenue and finalized a $76 million financing round last month. Other deals this year include $96 million in funding for risk analytics firm Skybox Security , and Fidelity Investments’ $50 million investment in anti-virus software maker Malwarebytes.

The reason for the change of pace may be largely related to the ‘panic spending’ that happened in 2015 post the big data breaches that companies like Ashley Madison, Slack and even Kaspersky faced. Enterprises were looking to secure their data infrastructure and VC’s had picked up on that. When it came to 2016, the focus was more on how to utilise this in the best way possible.

So while the investment from enterprises into cybersecurity grew, the investment and funding from VC’s did not grow as expected.

However, in 2017 VC’s are predicting that the enthusiasm for cybersecurity startups will grow. VCs have pointed out that the demand now is something out of the box to solve the cyber crime crisis that the tech industry is faced with today. With connected devices and Internet of Things becoming mainstream, cybersecurity needs are only growing.

Exabeam, Security Scorecard and Rubrik alone have contributed to around $200 Million in this quarter of 2017. This is promising news for the cybersecurity industry as a whole. Innovations in this space is the need of the hour and more money to startups mean more solutions to enterprise problems. So more power to them!

Follow us on LinkedIn, Facebook and Twitter to stay updated with more news about Cybersecurity.

I haven’t seen such polarising information on Cybersecurity in a good long while! One day the news channels are waxing eloquent about how VC’s can’t get enough of cybersecurity startups and the next day there’s lamenting about why investment has gone down drastically. So what is really happening with the Cybersecurity startup ecosystem. Is it blooming or are the prospects gloomy?

Since data and not metaphysics is often the answer to questions of this kind, we decided to look at the numbers related to cybersecurity in the VC circuit. According to research from Gartner, Inc. the world-wide cybersecurity market topped $75 billion in 2015 and IT security spending will soar to $101 billion in 2018, and hit $170 billion by 2020, according to a recent story in Investors Business Daily. This doesn’t seem to suggest any slowdown in terms of VC funding in cybersecurity. But if you were to look at the funding cybersecurity startups received by each quarter of 2016, the conflicting news make some sense.

After riding on the huge amount of interest cybersecurity startups saw in the last quarter of 2015, the first quarter of 2016 saw a little slump in February.

“Investors are looking at balance sheets and saying, ‘You raised $100 million and you have nothing to show for it?’” said Promod Haque , senior managing partner at Norwest Venture Partners in an interview with Fortune magazine in February 2016.

This remained the situation for the second quarter too, and things were not helped by the fact that not many cybersecurity companies were going the IPO route. The third quarter of 2016 saw renewed interest, but in Q4 the slump reared it’s head again. According to Cybersecurity Ventures after strong growth in Q3 16, cybersecurity funding dropped by more than half in the final quarter of 2016. According to PwC, the market saw $370 million in funding — a strong figure, but nowhere near what the industry saw in 2015. But despite these reports, the investments that happened through the course of 2016, weren’t meagre numbers at all.

EverCompliant, closed a $9.5 million Series A financing round led by Arbor Ventures with additional support from Carmel Ventures, StarFarm Ventures and Nyca Partners. ForeScout reported more than $125 million in 2015 revenue and finalized a $76 million financing round last month. Other deals this year include $96 million in funding for risk analytics firm Skybox Security , and Fidelity Investments’ $50 million investment in anti-virus software maker Malwarebytes.

The reason for the change of pace may be largely related to the ‘panic spending’ that happened in 2015 post the big data breaches that companies like Ashley Madison, Slack and even Kaspersky faced. Enterprises were looking to secure their data infrastructure and VC’s had picked up on that. When it came to 2016, the focus was more on how to utilise this in the best way possible.

So while the investment from enterprises into cybersecurity grew, the investment and funding from VC’s did not grow as expected.

However, in 2017 VC’s are predicting that the enthusiasm for cybersecurity startups will grow. VCs have pointed out that the demand now is something out of the box to solve the cyber crime crisis that the tech industry is faced with today. With connected devices and Internet of Things becoming mainstream, cybersecurity needs are only growing.

Exabeam, Security Scorecard and Rubrik alone have contributed to around $200 Million in this quarter of 2017. This is promising news for the cybersecurity industry as a whole. Innovations in this space is the need of the hour and more money to startups mean more solutions to enterprise problems. So more power to them!

Follow us on LinkedIn, Facebook and Twitter to stay updated with more news about Cybersecurity.

Paramount Assure

Written by

Arabian Gulf's leading provider of #Cybersecurity services. #InfoSec LinkedIn: https://www.linkedin.com/company/41112

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