6 Cybersecurity Start-Up Trends to Track
The pandemic took a bite out of funding deals, but cybersecurity start-ups fared better than many other industries.
February 1, 2021
![](https://eu-images.contentstack.com/v3/assets/blt6d90778a997de1cd/bltffdfcd6092140ee7/64f0d314fe3c57cdcb5a0cb7/1.jpg?width=700&auto=webp&quality=80&disable=upscale)
Even in the face of global uncertainty and considerable economic constraints thrown at the world in 2020, cybersecurity innovation kept trucking along.
New data emerging from the venture capital community and analyst sources indicates that while COVID-19 pandemic and the resultant fallout to the cybersecurity market definitely had an impact, the cybersecurity start-up world continues to draw investors optimistic in their prospects.
Here are some of the relevant trends they've recently identified.
According to a new report from DataTribe, 2020 saw a significant drop in VC deals across all U.S. industries. Data Tribe figures show a 39.7% decrease in deal volume at the seed stage, when a company is only an idea for a product or service, and a 32% decrease at Series A, the company's first significant round of VC financing. Counter to this trend, the cybersecurity industry remained relatively resilient. Despite a decline in cybersecurity deal volume in the past two years, these drops happened before the pandemic, and "deal volume in 2020 was relatively steady through the end of Q4 (2020)," DataTribe found.
According to the most recent check-in from Momentum Cyber analysts, the money raised by start-ups at all stages in Q3 2020 was on par with Q3 2019, at $2.6 billion. However, the overall deal value from these finance deals from Q1 to Q3 2020 was down year-over-year by about 22%. So while there was a rebound by year's end, the market hadn't fully caught up three-quarters of the way through the year.
The area Momentum Cyber is seeing the most significant declines was in merger and acquisition activity, indicating that exit opportunities for late-stage cyber start-ups were likely diminished in 2020. From Q1 to Q3 2020 there was a year-over-year 51% decline in cumulative cyber M&A deal values and a 34% decline in M&A deal count.
The silver lining to some of these diminished numbers in deal value is that early investment in new cyber innovators did not lose much momentum and is way up over the long term. Investors are putting more money down per deal at the seed round than they did in 2010. According to DataTribe, the median seed capital invested in U.S. cybersecurity companies has grown at an average of 13.2% annually over the past decade. Despite a slight blip downward in 2020 compared with 2019, two-year growth in the size of deals at these early stages remains strong.
Israel remains a major cybersecurity start-up incubator nation. According to the "State of the Cyber Nation 2020" report by YL Ventures, Israeli companies posted tremendous funding growth in 2020, counter to most trends elsewhere. Approximately $2.75 billion was invested in Israeli cyber start-ups across all stages last year, a 97% gain year-over-year. The biggest gains were in growth-stage funding rounds, which increased by 87%.
The YL Ventures report also highlights another interesting trend in who was successful in running funded companies in 2020 -- at least among Israeli companies. For example, 79% of new start-up founders were more experienced players compared with 21% being younger innovators. Additionally, in 2020 the percentage of new start-ups run by serial cyber entrepreneurs increased by several ticks, making up 36% of the new companies in 2020 compared with just 21% in 2019.
The YL Ventures report also highlights another interesting trend in who was successful in running funded companies in 2020 -- at least among Israeli companies. For example, 79% of new start-up founders were more experienced players compared with 21% being younger innovators. Additionally, in 2020 the percentage of new start-ups run by serial cyber entrepreneurs increased by several ticks, making up 36% of the new companies in 2020 compared with just 21% in 2019.
Even in the face of global uncertainty and considerable economic constraints thrown at the world in 2020, cybersecurity innovation kept trucking along.
New data emerging from the venture capital community and analyst sources indicates that while COVID-19 pandemic and the resultant fallout to the cybersecurity market definitely had an impact, the cybersecurity start-up world continues to draw investors optimistic in their prospects.
Here are some of the relevant trends they've recently identified.
About the Author(s)
You May Also Like
CISO Perspectives: How to make AI an Accelerator, Not a Blocker
August 20, 2024Securing Your Cloud Assets
August 27, 2024