The global cybersecurity market is currently valued at over $120 billion, up from just $3.5 billion in 2004, and the dollar amount of cybersecurity venture capital investment has grown 12 times in response. Over the past decade, the number of cybersecurity vendors has grown 23 times, an overabundance on the supply side that has complicated the marketplace and spooked less-committed, more-traditional investors. With competition high and differentiation low, backing new ventures presents much greater risk. Startups are finding it difficult to stand out. CISOs can be overwhelmed by the flood of new options.
Now the good news: Today's market dislocations present openings for those with foresight. More noise in the market doesn't change the fact that the signal (i.e., the number of opportunities on an annual basis) is still the same or growing. Increased competition historically has pushed markets to improve, and there's no reason to believe the current case is any different. Security teams that understand the market and openly communicate and align their efforts with the right partners can capitalize on the resulting growth. But first they have to understand the changing landscape.
Cybersecurity Increasingly Specialized
Much of the recent discussion surrounding cybersecurity, both optimistic and pessimistic, speaks about the industry in monolithic terms. This is reminiscent of how people spoke about the Internet 20 years ago. The reality now, as then, is far more complex. Stakeholders who simply focus on cybersecurity are likely not focused enough.
Cybersecurity has fragmented into a fractal of hypertechnical specialties and subspecialties. From a high level, each offshoot might blend indistinguishably into the overall landscape. But a deeper perspective reveals highly differentiated underlying patterns. Developing deep industry expertise and granular technical knowledge is the only way to evaluate opportunities at their appropriate depth and is the crucial first step to successfully filtering the signal from the noise.
Solving a Problem Is No Longer Enough
For better or worse, cybersecurity is a game of cat and mouse. According to Momentum Cyber, the number of threat types has gone from fewer than 50 to more than 1 million since 2007. And Cybersecurity Ventures predicts cybercrime damages will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015. There is no shortage of problems desperately in need of solving.
The recent flurry of cybersecurity vendors has largely sought to combat this explosion of threats in a piecemeal, reactive way. However, such an approach is unsustainable, and a sea change is brewing. CISOs are feeling overwhelmed by the onslaught of "me-too" vendors and are seeking to simplify. According to research by Cisco, companies currently have up to 70 different security vendors installed and 62% are actively consolidating their security stack as a result.
For vendors, simply solving a problem is no longer enough. Unless a new technology either helps CISOs solve an unaddressed or imminent, high-priority problem or better utilize and operationalize their existing security stack, it won't even register on their radar. Meeting either of these criteria requires both a workable technical solution and a viable market opportunity. Validating an idea or product along both of these dimensions requires extensive due diligence, technical expertise, and active engagement with customers.
CISOs Getting a Say in Product Development
There are a lot of things reportedly keeping CISOs up at night. But few articles on this topic are actually written by CISOs themselves. Instead of simply guessing what CISOs want, investors and vendors should incorporate customer feedback throughout product ideation and development cycles.
Cultivating and tapping a network of knowledgeable customers produces a powerful, virtuous cycle. Entrepreneurs and investors receive feedback that will both improve their product and maximize its chances of success. And CISOs, by virtue of participating, get access to a pre-vetted and decluttered sampling of promising vendors tackling relevant problems. Being a part of the product development process also allows CISOs to give voice to specific concerns other startups might have missed or that larger vendors have not properly addressed. Even high-profile CISOs have proven surprisingly willing to volunteer their time and expertise, illustrating the potential for innovative approaches to produce mutually beneficial relationships that improve the overall cybersecurity ecosystem.
High-Conviction, Value-Add Investment Is the New Standard
Cybersecurity is a complex, dynamic, and crowded market. Even the strongest products and brightest teams will need strategic, operational support until they gain their own momentum. Luckily, much of the expertise and skills that drive the investment process can be easily redirected toward amplifying the early efforts of founding teams. Whether it means fostering industry relationships to help guide business development, committing intelligence capabilities to analyze competition, or offering technical knowledge to facilitate product growth, investors should dedicate all resources possible to helping their portfolio teams succeed.
For their part, entrepreneurs should seek out partners capable of providing extensive, ongoing value-add support services and actively facilitating connections daily to potential customers. For example, our firm's network advisory board, comprised of corporate CISOs, meets prospective cybersecurity startups almost every day.
Cybersecurity is an industry still brimming with potential. However, capitalizing on that potential requires deep knowledge and high conviction. The current, crowded marketplace presents new pitfalls for less-sophisticated players. But those committed and careful enough to sidestep these challenges can reap outsize rewards. Investors, startups, and CISOs who appreciate the industry's complexity, anticipate the market's needs, and prioritize strategic collaboration will be poised to win big in the rapidly changing cybersecurity landscape.
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