January 18, 2019

Cybersecurity VC investment hits record high, but is a bubble ahead?

By Lucy Ingham

Venture capital investment in cybersecurity startups has reached an all-time high, but that isn’t necessarily good news, according to one cybersecurity expert.

A report published on Thursday by Strategic Cyber Ventures found that cybersecurity VC investment hit $5.3bn in 2018, representing a surge of 20% from the previous year, when investment totalled $4.4bn.

On the face of it, this is welcome news, particularly given the proliferation of cyberattacks and the warnings of increasing severity in the future.

“Stable growth of cybersecurity investments is definitely a good sign underlining that our society increasingly cares about the proliferating cyber risks and threats,” said Ilia Kolochenko, CEO of web security company High Tech Bridge.

“We are largely unprepared for many emerging digital perils that require a rapid response before hackers start taking control of entire corporations or even small governments.”

However, more money in cybersecurity does not necessarily translate into better protection technology, which is where concerns arise.

Cybersecurity VC investment: An incoming bubble?

For Kolochenko, increased investment does not automatically translate into technological advancements – instead it can simply be eaten by marketing as companies struggle to compete in an ever more crowded market.

“Spending more is not necessarily good for the cybersecurity market in the long term perspective,” said Kolochenko.

“For example, there is a limited number of high-quality marketing and event opportunities, and startups are forced to pay more and more to get there, often paying exorbitant prices.”

He argues that although the bubble is not yet here, there are reasons for concern.

“A considerable part of the investments, purported to be spent on innovative technology, is spent on pretty worthless marketing decorations,” he said.

“We are not approaching the bubble yet, however, the growing number of similar cybersecurity startups, offering quasi-identical technology although in different packages, is quite alarming.”

Verdict deals analysis methodology

This analysis considers only announced and completed cloud-deals deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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