Cybersecurity startup investments more than doubled in H1 2021

The pandemic has had a major impact on cybersecurity. Cybercrimes now cost the world nearly $600 billion each year, according to Mordor Intelligence — equivalent to nearly 0.8% of the global GDP. Meanwhile, the World Economic Forum reports that the likelihood of identifying and prosecuting the perpetrators of cyberattacks in the U.S. has fallen to a dismal 0.05%.

That’s perhaps why venture capital (VC) funding in cybersecurity more than doubled year-over-year during the first half of 2021, while the total number of mergers and acquisitions (M&A) in the sector more than quadrupled. A new report from AllegisCyber Capital, Momentum Cyber, and NightDragon finds that investors poured $11.5 billion in total VC financing in H1 2021, up from $4.7 billion in H1 2020, and that M&As jumped from $9.8 billion across 93 transactions to $39.5 billion across 163 transactions during the same period.

“As an investor in the cyber market for over fifteen years, I can say that this market climate is unlike anything we’ve seen to date,” AllegisCyber Capital founder and managing director Bob Ackerman said in a statement. “The market is primed for action to make a meaningful shift in the threat landscape and fuel the continued growth of the capabilities of our nation’s organizations to defend the technological infrastructure that powers our economy.”

Of the 430 investments in cybersecurity startups in H1 2021,  36 were greater than $100 million in value. By contrast, on the M&A side, nine deals eclipsed $1 billion, including Proofpoint’s $12.3 billion acquisition by Thoma Bravo, Auth0’s $6.4 billion acquisition by Okta, and McAfee’s $4 billion acquisition by STG.

The most significant investment deals were for companies in cloud security, security consulting, and risk and compliance. Top M&A categories were data security, network and infrastructure security, incident response, and threat intelligence.

“We are seeing a perfect storm of factors coming together to create the most aggressive threat landscape in history for commercial and government organizations around the world,” NightDragon founder and managing director Dave DeWalt said in a press release.

Continued momentum

Deal momentum is only likely to accelerate as hackers target newly digital businesses. Ransomware has increased 148% year-over-year with an estimated 2.9 million attacks so far in 2021, and the European Union Cybersecurity Agency (ENISA) recently predicted a fourfold rise in supply chain attacks in 2021 over last year. High-profile incidents like the Colonial Pipeline shutdown, JBS’ supply chain disruptions, and compromised SolarWinds and Microsoft Exchange servers could drive spending on global information security and risk management technologies to $150 billion this year, a 12.4% increase.

“Through the first half of 2021, we have witnessed unprecedented strategic activity with both M&A and financing volumes at all-time highs. We fully expect this trend to continue through the rest of the year and into 2022,” said Eric McAlpine and Michael Tedesco, managing partners at Momentum Cyber.