Despite an overall funding slowdown amidst investor worries that cybersecurity startups may be overfunded, a group of hedge funds, mutual funds, asset managers, and other diversified financial services firms are increasingly betting on cybersecurity startups.
These “crossover investors” — those that are customarily focused on the public markets — have been participating in deals alongside VCs and other tech investors. Crossover investors have participated in over 70 cybersecurity deals since 2012.
Select crossover investors that participated in deals so far this year include Fidelity Investments as the sole backer of a $50M Series B round to the company Malwarebytes, as well as Lazarus Investment Partners’ partial backing of Cynet, and Goldman Sachs’ investmment in Ionic Security, among others.
Growth in crossover deals and dollars
Deals involving crossover investors to private cybersecurity companies rose since 2012, albeit with deals and dollars falling off this year. At the current run rate, dollars from deals involving crossover investors are projected to come in below last year’s total, but still above previous years’ funding totals.
Deals to private cybersecurity companies involving crossover investors rose from just 5 in 2012 to 25 in 2015, with this year’s run-rate (based on deals through 9/6/16) on track for over 20 deals by year-end, putting it just below the 2015 deal peak.
Other notable crossover deals this year include a $41M Series D round to vArmour Network, which offers data center and cloud security in addition to cyber deception solutions. The company was backed in that round by investors that included Redline Capital Management.
Crossover deal share by stage
In deal terms, investments that involved crossovers skewed towards early- and mid-stage rounds (Series A and B) — but were quite diverse overall.
29% of deals involving crossovers were early-stage (seed/angel and Series A), 30% were mid-stage (Series B and C), and 25% were late-stage (Series D+).
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