Security investing on course for second largest year

Cybersecurity investing remains a hot spot for venture capitalists, though not as hot as last year.

This year is shaping up as the second biggest year for deal-making from a dollars standpoint. But since it trails the largest-ever year for security investing, 2015, it also is likely to be a down period when the final term sheets are signed at the end of December, according to data from Thomson Reuters.

Still, deal volume could top last year’s and set a record, if only by a hair.

Through 2016’s first nine months, $1.77 billion has gone to cybersecurity startups in the United States, the data shows. That’s off 18 percent from $2.14 billion in the year-earlier period. For all of 2015, investors put $3.13 billion to work.

Deal volume is up 4 percent through the three quarters, to 142 from 137 a year earlier. A steady fourth quarter could send the total above the record 182 deals of 2014.

Investors say they are seeing the strong activity.

“It is hard for me to say the activity is slowing down in anyway,” said Kapil Venkatachalam, a general partner at Technology Crossover Ventures. “I don’t see things falling off the cliff from a volume standpoint.”

Kapil Venkatachalam, general partner, Technology Crossover Ventures. Photo courtesy of the firm.

A pullback in the public-market valuations of companies such as Palo Alto Networks and FireEye early this year led to a retreat in some private-company valuations.

But companies continue to buck the trend, including Cylance, which in June raised $100 million in a deal that reports said valued the company at about $1 billion.

Venkatachalam said he’s seeing strong activity in endpoint security and identity-access management.

Downloadable Data in Excel: venture-investments-in-u-s-cybersecurity-companies

Photo of a padlock displayed at the Alert Logic booth during the 2016 Black Hat cyber-security conference in Las Vegas, Nevada, Aug. 3, 2016. Reuters/David Becker