VC Investment in Cybersecurity Dips & Shifts with COVID-19

While the pandemic has infected funding for cybersecurity startups, it also has emboldened some startups with innovative tools that secure the wave of at-home work.

[This is the second installment of a two-part series on COVID-19s impact on the cybersecurity industry. Read the first part, Cybersecurity Spending Hits Temporary Pause Amid Pandemic,
here
].
Not even the traditionally flush cybersecurity venture-capital sector has escaped the economic fallout of the COVID-19 pandemic: New data shows early-stage investment dropped by more than 37% in the first half of 2020. But there are still signs of growth in cybersecurity investment, according to a new analysis of VC deals.
Venture capital firm DataTribe pulled and
studied
VC deal data from Pitchbook — a VC, private equity, and mergers and acquisitions database platform — to take the temperature of the VC climate in the pandemic.
Mike Janke, co-founder and investment board member of DataTribe, says the downturn in VC spending technically started in 2019 as the saturated threat intelligence sector and other technologies experienced an expected consolidation of vendors and products. The world doesnt need 72 threat intel feeds. What weve seen over time is very similar to what happened in the endpoint explosion, he says, where once the next-generation endpoint market matured and some of its main vendors — CrowdStrike and Carbon Black (now part of VMware), for example — went public. VC investment has shifted to newer technologies, he says. In his firm, the hot investments now include cloud security, secure containers, artificial intelligence, and industrial homomorphic encryption, for instance.
Janke says certain pockets of newer cybersecurity technologies are driving investments. Across our portfolio, they are beating pre-COVID 2020 estimates, which shocked us, he says.
When people werent in the office and physical security operation center anymore, for instance, their use of advanced endpoint and data analytics became less relevant, he says. It was all about how we connect. ... [A]ccess identity control was huge, and there was a move to buy more emerging technologies.
DataTribe and other VC firms say that security companies with the most innovative and solid offerings are still receiving healthy funding in the pandemic, and that while in some cases funding has slowed, VCs firms see some new investment opportunity in the slowdown.
Even so, the pool of startups has slowed. Chenxi Wang, founder of cybersecurity venture capital firm Rain Capital, says the number of pitches her firm has received since the pandemic began has been down, up, and down: The highest decline came dramatically in March, and then it was back up in April, May, and June, and now a little lower again.
Shes seen about a 25% drop in the number of calls she gets from entrepreneurs of late. However, large companies are still getting very healthy evaluations and very healthy sheets. ... [B]ig companies are still getting competitive offers, Wang says.
One of the unexpected benefits of working from home has been more time to stay in touch with entrepreneurs, she says. I find I have more time to talk to people and interact with entrepreneurs and users now, she says, even without the traditional face-to-face meeting traditions.
Cloud security, of course, is at the top of Wangs list of healthy investments, as is the emerging data protection sector. Theyre prioritizing technologies that really help companies in achieving quality ... and productivity in security tasks and initiatives and cost-savings, she says. CISOs, she notes, are squeezing as much as they can out of their already-tight budgets.
Given that many organizations now are questioning whether they need to keep leasing costly office space as the pandemic ultimately subsides, the next wave of VC investments likely will double down on technologies that address remote work threats. Many large organizations wont be reupping their massive real estate footprints, according to Janke. Other than people and benefits, real estate is the second largest expense of a company, he says. An income-strapped company can quickly cut a quarter or even a third of its expenses by closing some office space, he notes.
Permanent work-from-home opens the door for once-boutique technologies to become more mainstream. Take BlackCloak, a cybersecurity service for executives at-home technology, including their home networks. Enterprises are buying it for their board and top 100 executives, [who] are becoming the new attack surface for nation-states, Janke says. Why attack Exxons network when you can attack the CFOs daughters iPad at home?
Big corporations are offering BlackCloak as a perk — they cant legally enforce home security of their employees, he notes. Theyll cover [the security of] your home network and devices, he says.
Remote work has made other companies in DataTribes portfolio even hotter. Take Prevailion, which sells a real-time monitoring service of compromises of a companys network and connections. Janke says Prevailions projections have tripled since November. That was a COVID impact: Everybody is at home, and [security pros] are trying to look at the attack surface outside of the organization now, he says.
Previously, people would buy Prevailion to see whats happening outside their network to look for data leaks, he says. Now all of a sudden you have the CFO, the CTO ... all working from home and you now need visibility into those IP addresses as they connect to the network for financial data, for example, he notes.
Reality Check
For now, look for mature B- and D-series funding to continue for the healthy startups. In new-seed and A deals: If youre redundant and competing with eight or nine competitors in a market, its going to be tougher, Janke says. Me too technologies arent going to get funding in the pandemic, he notes.
Alberto Yepez, head of cybersecurity-focused venture fund Forgepoint Capital, says the top priority for VCs at the start of the pandemic was to stop and assess their portfolios. Aspirations are more tempered and real now. The ones trying to command high valuations are not going to be successful in raising capital, he says. Those running out of cash and who need more will have to accept the fact that they may have to realign their evaluations.
Meantime, Ofer Schreiber, partner at YL Ventures and head of its Israel office, says early-stage Israeli cybersecurity startups continue to thrive. In fact, since the COVID-19 outbreak, weve continued to invest in new startups and have two currently still in stealth. As far as were concerned, its very close to business as usual, he says.
Our focus on seed-stage investments and accelerated company growth affords us a very long-term view; several quarters of slow revenues is never ideal, but, ultimately, weve got our hearts set on a years long roadmap, Schreiber says. The new normal is requiring a great deal of change and adaptation. We intend to keep an ear to the ground for those who intend to help companies navigate it a little more safely.

Related Content:
Cybersecurity Spending Hits Temporary Pause Amid Pandemic
VC Investments in Cybersecurity Hit Record Highs in 2018
Latest Security News & Commentary About COVID-19
7 IoT Tips for Home Users

Register now for this years fully virtual Black Hat USA, scheduled to take place August 1–6, and get more information about the event on the Black Hat website. Click for details on
conference information
and
to register
.

Last News
▸ ArcSight prepares for future at user conference post HP acquisition. ◂ Discovered: 07/01/2025 Category: security	▸ Samsung Epic 4G: First To Use Media Hub ◂ Discovered: 07/01/2025 Category: security	▸ Many third-party software fails security tests ◂ Discovered: 07/01/2025 Category: security

**Cyber Security Categories**
Google Dorks Database	Exploits Vulnerability	Exploit Shellcodes

CVE List

Tools/Apps

News/Aarticles

Phishing Database

Deepfake Detection

Trends/Statistics & Live Infos

Tags:
VC Investment in Cybersecurity Dips & Shifts with COVID-19