Cybersecurity startups that offer dramatic new visions for digital defense are seeing a surge of interest from venture investors. According to a new report from cybersecurity venture capital firm DataTribe, the trend reflects the way the cybersecurity industry is resetting after a wave of venture capital began dropping off about two years ago.
DataTribe cofounder Mike Janke, formerly part of SEAL Team 6, said in an interview with VentureBeat that the cybersecurity funding frenzy created a glut of companies that were offering too many iterative products and services. Over the last couple of years, the industry has seen what may have been an inevitable increase in acquisitions and consolidations.
“Who needs 72 threat intelligence companies?” Janke asked. “Who needs 28 well-funded endpoint security startups?”
Overall, venture funding for cybersecurity remains quite small compared to other headline-grabbing sectors, like ecommerce, delivery, and mobility. But the report called cybersecurity deal flow “resilient” as it remained basically flat in 2020.
The total value of security investments had also been falling as investors backed away from later-stage deals amid the consolidation. But DataTribe finds optimism in the earliest-stage companies.
The report notes that cybersecurity pre-money valuations at the seed and series A stages have risen over the past 10 years — in line with overall venture funding — growing at an annual rate of 13.2% for an increase from $800,000 to $3 million.
Janke also noted that several qualitative trends are emerging under this data.
For instance, enterprises are increasingly worried about attacks from nation-states, such as the recent SolarWinds hack perpetrated by Russia. As this threat leads to more executive-level discussions of security and budget increases, more cybersecurity startups are being founded by people with security experience in U.S. agencies such as the NSA, CIA, and DARPA.
The move to the cloud has also been accelerated by the pandemic, as well as trends such as remote work. This comes on top of large fundamental shifts like the massive overhaul in cloud infrastructure. The result is new networks and systems that need innovative approaches to security architectures.
“The enterprises in this digital transformation are going from the way networks were set up and secured five years ago to today,” Janke said. “They’re looking for technologies that can solve a lot of the challenges with newer technology, not older iterative solutions.”
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