Seed rounds for cybersecurity rose during pandemic as enterprises search for new defenses

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 cooled starting about two years ago.

In an interview, DataTribe cofounder Mike Janke, a former SEAL Team 6, said 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 a growth in acquisitions and consolidations that was perhaps inevitable.

“Who needs 72 threat intelligence companies?” he said. “Who needs 28 well-funded endpoint security startups?”

Overall, venture funding for cybersecurity remains quite small compared to other headline-grabbing sectors likes e-commerce, 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. Where DataTribe finds optimism then is in those earliest-stage companies.

The report notes that cybersecurity pre-money valuations at the Seed stage and Series A rounds 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 there are several qualitative trends that 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 leads to more executive-level discussions of security and budget increases, that dynamic is also resulting in more cybersecurity startups being founded by people with security experience in U.S. agencies such as the NSA, CIA, and DARPA.

In addition, the move to the cloud that has been accelerated by the pandemic, as well as trends such as remote work, come on top of larger fundamental shifts such as the massive overhaul in cloud infrastructure. The result is new networks and systems that need innovative new approaches to security architectures.

“These enterprises in this digital transformation that are going from the way networks were set up and secured 5 years ago to today, they’re looking for technologies that can solve a lot of the challenges newer technology, not older iterative solutions,” Janke said.

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