What VC Funding Reveals About the Future of Cybersecurity
This year has brought a flood of new venture capital funding in cybersecurity, following up on last year’s record of $5.3 billion.
Security is continually evolving, and what worked to protect customers just a year ago might not be effective today. Solution providers might not have the time or expertise to evaluate new options among the growing number of startups and others in the industry.
During his presentation titled, “Security 2020: What VC Funding Reveals About Future Trends,” part of the security track sponsored by Nextiva at Channel Partners Evolution, Sept. 9-12, in Washington, D.C., Seth Spergel, vice president of emerging technology at Merlin International, will discuss some of the recent trends in security venture investment. He’ll cover what VCs look for in a company that can inform your selection process and how MSPs can buck conventional wisdom and find hidden gems of security startups to work with.
In a Q&A with Channel Partners, Spergel gives a sneak peek of the information he plans to share during his presentation.
Channel Partners: There’s been a flood of cybersecurity investment during the past several months. What’s fueling this trend?
Seth Spergel: I think a lot of it is fear of missing out due to some of the insane exits and valuations people read about cybersecurity companies getting. In 2013, there were 39 “unicorns” (venture-backed companies valued at over $1 billion). Today there are over 300, with 112 added in just 2018. When those companies go public, as seven of them did in 2017 and 2018, people hear about the significant returns early investors made. No one wants to miss out on the next one, and that, combined with the sheer amount of venture capital funds that have been stood up in the last few years, means there is a lot of money that people are very eager to deploy. It doesn’t hurt that cybersecurity is finally starting to impact financial performance of companies — for example, with Moody’s downgrading of Equifax following their breach. That drives additional interest in the cybersecurity market, and everyone wants to find the next unicorn.
|Hear from Spergel and a great lineup of speakers at Channel Partners Evolution who will help you improve your business. It all happens Sept. 9-12, in Washington, D.C. Register now!|
CP: Are investors looking for particular indicators in cybersecurity companies?
SS: Every investor has different things they look for. Typically investors want to see a founding team that understands their market, has a track record of success, and has something unique about them that makes them have a higher likelihood of success than others. The cybersecurity space is so crowded right now, it’s unusual to find a company that has a truly unique product, so an investor needs to know why this one company will succeed when others will likely fail. It’s also important to understand that there are different types of investors. Whereas VCs are more focused on generating financial returns to their limited partnerships (LPs), strategic investors may be looking for something that complements their product/service portfolios, accelerates their product road map or provides them a competitive advantage. Ultimately, both financial and strategic investors are looking for deals that will generate outsized returns.
CP: Is VC funding becoming a competitive advantage, and if a company isn’t getting any, are they doomed to fail?
SS: If there is one thing I’ve learned working in this space it’s that VC is not the answer for every company. For some, it’s a huge advantage, especially if you have the right investors or cutting-edge technology that requires capital to invest in R&D or sales. But it has to be the right type of company, and the management team of the company has to …