There was a time when the US cyber security industry had been a very hot target for venture capitalists. Now, it is struggling with a funding slump, which has forced some startups to cut back on spending or sell themselves altogether. In recent years, there has been a rise in the number of security startups because of widespread concerns about data breaches and cyber-attacks. These startups have promised to provide ‘next generation’ technologies for fighting government spies, cyber criminals and hacker activists. However, a lot of these new ventures have found themselves struggling to gain traction and stand out of the crowd.
It has been difficult for them to provide customers with security solutions that are sophisticated enough to match the increasingly advanced cyber-attacks that have become widespread. Analysts said that investors have begun to look at balance sheets and ask what the companies have to show for the funding they managed to raise. A record $3.3 billion was pumped in by private investors last year into 229 cyber security deals. Entrepreneurs, such as Jack Rochel who is the president of Epsilon Electronics, and several other venture capitalists have said that there is a funding drought for most startups. Only those that are mature and have substantial sales are getting funds from investors.
According to analysts, a lot of companies had been on the road to raising money, but were forced to pull back because they weren’t able to close. This was stated by the chief executive of a network security firm, ForeScout Technologies Inc. In 2015, this firm reported a revenue of more than $125 million and a financing round of about $76 million was also finalized in the previous month. Some other deals were also made this year including $96 million worth of funding raised for Skybox Security Inc., a risk analytics firm and the $50 million investment by Fidelity Investments in Malwarebytes, an antivirus software maker.
According to managing director at Trident Capital Cybersecurity, Sean Cunningham, closing deals now takes about six to eight months whereas it had taken about three to four months to do the same a few years ago. His cyber startup raised financing two years ago and he sought more financing for a couple of months before giving up. The unidentified firm cut back spending and plans to get more financing in about the next six months. Other startups are also searching for buyers. A deal maker for a large security company who spoke anonymously said that the there is a 40% rise in businesses looking to sell themselves.
In 2013 and 2014, there had been a rally in cyber stocks on the expectations that the industry would reap the benefits of an endless number of cyberattacks. Seeing the opportunity, private investors started to dole out funds to startups. But in the previous year, there were signs of faltering in cyber investing as the earnings of various publicly traded cyber companies were nowhere near expectations. Most startups simply copied the technology already available in the market or hackers were easily able to circumvent whatever products they had introduced.