Chenxi Wang of Rain Capital.
- Investments in cybersecurity were 19% of all early venture capital deals in Q3, a record high, according to startup accelerator DataTribe.
- DataTribe says cybersecurity investing marks one of the “first signs of recovery,” especially in the area of security protecting software development.
- Investment experts at Kleiner Perkins, Rain, Sapphire, and PitchBook also shared their opinions on the hot areas of cybersecurity investing.
- The investors names the startups Apiiro, BioCatch, Netskope, BlackCloak, and Exabeam as possible breakouts as an economic recovery hits cybersecurity, perhaps in Q4.
- Visit Business Insider’s homepage for more stories.
Cybersecurity is heading into the home stretch of 2020 as a bright spot in investing – especially for new startups that address certain areas such as remote work needs – according to a new report and commentary from top investors.
This makes investment in cybersecurity an early and promising area of economic recovery from the COVID-19 downturn, they say. New research from cybersecurity startup accelerator DataTribe shows seed investment in security startups is booming, both in comparison to past years and to other parts of tech.
“These numbers are the craziest I’ve ever seen in all my years of doing this,” says Mike Janke, cofounder of DataTribe. In Q3, cybersecurity represented a record-high 19% of all US early venture activity, the report found. Deal size for early cybersecurity startups was up 33% in Q3 compared to Q3 2019, DataTribe found.
“Q3 marks the first signs of recovery for those industries bolstered by the pandemic, particularly cybersecurity,” DataTribe says in the new report. Janke and other top investment experts point to certain key areas in Q4 and 2021, including the red-hot area of developer security, which involves protecting computer code from security vulnerabilities as software and applications are being created.
Forrester cybersecurity analyst Jeff Pollard agrees that security investing could lead the way out of the downturn for tech. “Cybersecurity spending – due to externalities such as attackers, regulatory bodies, governments, and third party requirements – will likely make the sector a source of faster recovery in tech spending areas,” he says.
Here is the guidance from Janke and four other top experts on where they’re placing their bets:
Janke says there is a boom in developer security operations – the sector of cybersecurity that helps developers ensure the computer code they use to build software is free of security issues. “DevSecOps is a hot area,” he says.
He points to a related area, security for developers of applications, as a hot area for startups including DataTribe investment Code Dx. And he says protection of executives working at home is a hot trend, led by DataTribe investment BlackCloak.
“You now have CEOs, CFOs, and board members all working from home, on home networks,” he says, where they are vulnerable to hackers, including well-funded nation-state hackers from adversaries such as Russia, China, North Korea, and Iran.
Ted Schlein, general partner at high-profile venture capital firm Kleiner Perkins Ted Schlein of Kleiner Perkins.
Another fan of developer security is Ted Schlein, the longtime cybersecurity investor and general partner at revered VC Kleiner Perkins. Schlein told Business Insider he has been waiting to nip security issues in the bud for a long time. “I have spent 35 years trying to get at the root cause of cybersecurity issues.”
In cybersecurity this is sometimes referred to as “shifting left,” beginning security earlier into the product development. Schlein believes the sector is “a big deal.” Schlein says Apiiro, which just grabbed a $35 million Series A round that he led, is a key example of companies preventing security issues that are now even harder to track down and address in a distributed workforce.
Other trends he thinks will be key for investment include cybersecurity startups that fight disinformation to “figure out what what’s real and what’s not real and the dissemination of this information,” and security that protects supply chains. Schlein’s other security investments include potential acquisition target Ionic Security, and the red-hot cyberthreat intelligence startup IronNet.
Chenxi Wang, founder and general partner, Rain Capital Rain Capital cofounder Chenxi Wang.
Chenxi Wang, founder and general partner, Rain Capital, is an early-stage investor who says small companies can blow up fast in the quick evolving area of cybersecurity. She has also seen recent interest in new companies keeping pace with cybersecurity’s new directions during the remote work era.
“I see a lot of interest in young companies from other investors, particularly in cloud security,” says Wang. “It used to be the case that you had to be fairly senior in the security industry before you sold your product to the Fortune 500. Today I think it’s very common for a small startup that has an interesting product to be deployed in one of the largest banks or large healthcare companies.”
Wang says Rain investment Jupiter One uses automation to simplify security operations – automatically gathering key security data from all areas of companies’ networks. She also praises Rain investment Satori Cyber in the data-protection area where many companies need help complying with data protection regulations. Wang also touts her investment Living Security, a training startup that engages employees in security education, another hot area.
Brendan Burke, senior analyst at PitchBook Analyst Brendan Burke of PitchBook.
“DevSecOps” – short for developer security operations, the area many of our experts cited – “has rapidly emerged from obscurity” to become one of the highest-funded categories in cybersecurity, according to PitchBook. Brendan Burke, a senior analyst at the startup analysis firm, believes the sector is worth $11.6 billion, with most of it up for grabs. Burke sees a “$9.2 billion revenue opportunity that is largely unaddressed by legacy cybersecurity vendors.”
The hot startup Snyk, as well as the aforementioned Apiiro and Sonatype are booming in this sector. Burke also believes behavioral biometrics – unlocking phones and online accounts with facial recognition and gesture recognition – is another hot area of cybersecurity investing.
The Israeli startup BioCatch recently extended a $168 million Series C round, and commercial adoption from financial institutions, he notes. “Demand for fraud prevention technology has become heightened as a result of COVID-19 and behavioral analysis can adapt to novel forms of fraud,” Burke says.
Jai Das, investor with Sapphire Ventures Jai Das of Sapphire Ventures
Jai Das of Sapphire Investments sees three major trends blowing up in cybersecurity investing right now: First, the movement to remote work has widened companies’ “perimeter” of computer networks they need to defend. Second, security products that protect cloud-based operations run with computer code in “containers,” an increasingly popular way to deploy software in clouds like Amazon’s, Microsoft’s, or Google’s. And third, “hacking and ransomware have accelerated tremendously,” Das says, and companies “are trying to plug all the security holes” that allow ransomware hackers access.
Das says “There is a new breed of cloud native security companies that are solving these problems and growing very rapidly.” Das points to three of his firm’s investments in cloud security: Netskope, Auth0 and Exabeam. He also says that “companies like Snyk and Tanium are also doing quite well in this environment.”
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