Funding for venture-backed cybersecurity startups continues at an impressive pace, albeit significantly below the record set last quarter.
Venture dollars invested in cyber startups reached nearly $6 billion in the first quarter, according to data from Crunchbase. That marks a nearly 50 percent increase from the first quarter of last year, and would put it on track to break the all-time high for a year set last year with more than $20 billion invested in the space.
Deal flow was also on par with the same period last year, with 189 funding rounds announced compared to 179 in the first quarter of last year, according to Crunchbase.
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However, the first quarter marks a significant decline from the nearly $8.2 billion invested last quarter, a record in itself. In the fourth quarter of last year, 232 massive deals were also announced.
The first quarter numbers also show some peaks and valleys. While January proved strong with around $1.9 billion in investment, February saw a huge surge to $2.7 billion. However, March fell to $1.3 billion.
However, the first quarter as a whole looks strong despite some headwinds in the risk market. There were 17 nine-figure rounds that went to cybersecurity startups last quarter, including three rounds of a quarter billion dollars or more:
Will the dollars sink?
The numbers are not likely to surprise those who follow the market; Cybersecurity funding has been on the rise for years as new attacks and breaches occur on a daily basis. In the last quarter alone, the okta breach made big headlines, and concerns continue to swirl about potential Russian attacks as geopolitical issues continue to simmer.
Those who invest, however, say that some of the same trends plaguing many other venture-backed startup sectors can also be seen in cyber to some degree.
“That said, we may see some balancing of the cybersecurity industry in line with the rest of the market as we witness higher levels of investor uncertainty at later stages,” Schreiber said, pointing to examples such as slower processes. , lower valuations and smaller rounds are contemplated.
“There are cybersecurity companies that raised extraordinary rounds at extreme valuations in 2021 and will struggle to justify upside rounds this year as revenue multiples may not add up,” he added.
Valuations in the space remain high. Eight startups were recently coined unicorns in the first quarter of the year, including the New York-based one Axonius and based in Dallas Island last month, according to Crunchbase.
“Throughout 2021, we saw many new investors enter the private investment market driving valuations to new highs in order to access deals,” Yépez said. “In 2022, we expect valuations to normalize as new investors entering the sector wind down and pause.”
An accelerating wave of market consolidation could also hit the sector, Yepez said. Companies that raised money at higher valuations will have to decide between lower-value follow-on rounds or joining forces with established players seeking innovation and expansion of their addressable markets, he said.
“Cybersecurity is a hot market and the flames are just beginning,” Yépez added.
Cybersecurity is defined by the network security, cloud security, and cybersecurity industries, according to data from Crunchbase. Most announced rounds are represented in the database, however there could be a slight delay for rounds reported late in the quarter.
Illustration: Dom Guzman
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