Funding for cybersecurity startups hit a multi-year high in 2014 after years of consistent growth, spurred in part by increasing numbers of online attacks and leaks of sensitive data. With the space becoming increasingly crowded, it’s more important than ever to be able to know where top investors are putting their money.
Top VC investment in cybersecurity has exploded
Over the last 5 years, the top 20 smart money venture capital firms have multiplied their investments in cybersecurity several times over.
(Note: For a full list of the smart money VCs included in this analysis, and how we selected them for the list, please see the addendum at the end of this research brief.)
In 2014, deals involving these smart money VC firms hit a multi-year high at 56 deals, and overall funding from these deals was roughly $1.2B or about 6x what it was in 2010.
While deals and funding appear to have tapered off in the first half of 2015, smart money remains active in cybersecurity.
In Q1’15, smart money VCs participated in deals that invested some $222M in cybersecurity, which is significantly more funding than in all of 2010. Large Q1’15 smart money cybersecurity deals included Andreessen Horowitz’s $52M growth equity round to Tanium. There was also a $40M Series C round to Ionic Security, with the participation of Google Ventures and Kleiner Perkins Caulfield & Byers.
Key cybersecurity segments
One useful way to visualize smart money strategies is to use CB Insights’ Business Social Graph, which shows how key investors and target companies are related. For the most part, all of the top 20 VCs have been extremely active in cybersecurity investing. Andreessen Horowitz and Kleiner Perkins Caufield & Byers have both completed 30 or more cybersecurity deals in the last 5 years.
The next tier includes VCs which have all made 20 deals or more in the same period: Sequoia Capital, Accel Partners, and Khosla Ventures. Of the top 20 smart money investors, 13 have made 10 or more investments in cybersecurity over the last 5 years and all have made at least one deal in the space over the last 5 years.
Within the cybersecurity space, top VCs are betting on cybersecurity companies with focuses in several key areas:
- Mobile and cloud-based defense: Companies like Duo and Lookout are (among other products) providing companies better defenses as the workforce goes mobile. Many providers of these cloud-based security services are themselves utilizing cloud technology to create these systems and deploy them at scale.
- Cloud defense: Companies like CloudLock and Skyhigh Networks provide solutions that help companies protect data in cloud applications like Salesforce and Microsoft Office 365, as the enterprise and its data moved to the cloud.
- Identity management: Companies like OpenDNS help prevent fraud and provide safe internet connections using data science and networking tools to set up secure digital identities for users. Using data like past access patterns, IP address, device, and network, these companies’ software can detect attempts at fraud or impersonation.
Note: To analyze smart money trends, we looked at the activity of the top 20 VC firms, selected according to portfolio valuations and CB Insights’ Investor Mosaic investor ranking model. Here’s our full list of 20 smart money investors. Some of the investors are linked to relevant research briefs:
- Accel Partners
- Andreessen Horowitz
- Battery Ventures
- Benchmark Capital
- Bessemer Venture Partners
- CRV
- Greylock Partners
- Kleiner Perkins Caufield & Byers
- New Enterprise Associates
- Redpoint Ventures
- Sequoia Capital
- Union Square Ventures
- Spark Capital
- Index Ventures
- Khosla Ventures
- Founders Fund
- Google Ventures
- Felicis Ventures
- Floodgate Fund
- First Round Capital