Investors see positives in surging need for cybersecurity

An increased environment for threats has attracted late-stage investors to cybersecurity, according to NightDragon and AllegisCyber.

With increasing digitization comes more cyber-threats. It is in this environment that investors are flocking to the cybersecurity sector, a trend that will likely continue in the long term, a new report says.

The report from strategic adviser Momentum Cyber showed investments from private equity and venture capital firms have grown in the first half of 2021. Through the first six months of the year, the cybersecurity sector saw $11.5 billion in financing activity, an amount on track to beat all of 2020’s $13 billion. In addition, deal volumes from January to June 2021 exceeded investments made in the past eight years.

Private equity and late-stage activity were responsible for $5 billion-plus deals in the first six months of the year, the report noted. These deals include Proofpoint, valued at $12.3 billion, McAffee Enterprise Business at $4 billion, and Thycotic at $1.4 billion.

David DeWalt, chairman of Momentum Cyber and managing director of growth-stage investor NightDragon, told Venture Capital Journal that much of the investment interest in cybersecurity stems from the impact of the pandemic and remote work, which opened up more opportunities for attacks.

VC Venture Cybersecurity
David DeWalt, NightDragon

“You’re starting to see multifaceted investment types, such as private equity, venture equity, sovereign wealth and the venture arms of major companies coming into cybersecurity in a big way,” DeWalt said. “There’s a plethora of investment types and an expansion of investments into the infrastructure.”

He added that investors now realize that the cyber-threat environment is far bigger now. The more industries go digital, the more opportunities for bad actors to attack, and companies to innovate.

NightDragon recently raised $750 million to invest in cybersecurity companies.

Deals at Series C or later jumped to 250 in the last 12 months until June 2021, a significant increase from the 135 during the same period last year. Despite this growth, it’s still early-stage investments that lead the pack during the period, with 322 companies funded compared to 272 the year prior.

Robert Ackerman Jr., founder and managing director of AllegisCyber Capital, said the current investment environment shows just how resilient the sector is.

VC Venture Cybersecurity
Robert R. Ackerman Jr., Allegis Capital

“When the public equity markets were selling off early in the pandemic, cyber companies were phenomenally resilient and continue to be so,” Ackerman said. “The cyber problem doesn’t go away or get smaller. There are not many sectors of innovation over the last 50 years that have that kind of insulation against macroeconomic trends.”

He added that today’s cybersecurity environment is good for start-ups because innovation becomes even more critical to counteracting threats. However, Ackerman said most exits in the cybersecurity world are mergers and acquisitions, as it is difficult for larger companies to remain on the cutting edge of innovation.

Ackerman and DeWalt both point out that the sector continues to be undercapitalized and that as cyber-threats continue to evolve, investment interest in cybersecurity will only continue to grow.