Despite a 28% decrease in cybersecurity startups during 2017, global venture capital funding for cybersecurity rebounded with record high investments, according to Strategic Cyber Ventures.
Though last year saw $5.3 billion in cybersecurity global ventures, Strategic Cyber Ventures called this an unsustainable investment rate.
Over half of cybersecurity founders of new startups have more than a decade of executive or entrepreneurial experience, as opposed to the past two years in which there was nearly an even split between experienced founders and less-seasoned founders, the report found.
In fact, 2018 was the fifth consecutive year in which Israel enjoyed increasing round sizes at the seed stage. Additionally, the amount of funding across all stages increased, keeping the recent trend of fewer companies raising larger amounts of capital moving forward.
Though there were emerging fields among new startups in 2018, including cybersecurity solutions for cryptocurrencies and software-defined perimeter (SDP), the most overwhelmingly funded field across all stages was internet of things (IoT) security. Though most startups were within the SCADA and medical devices sub-domains, other emerging fields included threat detection, security operations, data protection and cloud security.
Nevertheless, the report said, “In cybersecurity, there are likely many zombies out there. They’ve raised big rounds, growth has slowed, perhaps due to vendor fatigue or increased competition, and now these companies can’t raise at increased valuations from prior rounds, or at all, and are being propped up by existing investors that will eventually grow weary of keeping them alive. These companies will eventually float to the surface over the next few years with less than desirable outcomes for investors and founders.”
According to Chris Ahern, principal, Strategic Cyber Ventures, "We’ve seen massive funds formed over the past few years and some of that money is making its way to cybersecurity deals. Second, we’ve seen some strong exits in the space through IPOs and M&A over the last couple of years."
The problems aren’t going away. 2018 had several massive, high-profile breaches and we’ll continue to see this into 2018 as well as a continued discussion around privacy. The real question is whether it’s a good thing that 2018 was a record year for cybersecurity investment.”