Even with a pandemic that has raged around the world for the majority of 2020, the cybersecurity market retained investor interest and many in this sector expect next year to be no different.
“Security is a red hot sector with more and more money pouring into it,” said Andrew Atherton, managing director at Union Square Advisors.
Funding numbers remained strong this year, according to Crunchbase data. The cybersecurity sector saw more than $8.1 billion invested to date globally this year and nearly $6.3 billion in the U.S. That compares to $7.4 billion globally and $4.7 billion in the U.S. last year.
Large deals in 2020 include Santa Clara, California-based Netskope hauling in $340 million in February; Mountain View, California-based SentinelOne raising $267 million in November; Dallas-based StackPath closing a $216 million Series B in March; and Minnesota-based Arctic Wolf announcing a $200 million raise in October.
Merger and acquisition dealmaking in the cybersecurity sector did take a hit, with values dropping from $28.1 billion in 2019 to $13.8 billion at the end of the third quarter this year, according to San Francisco-based financial advisory firm Momentum Cyber.
Despite the drop in dealmaking, Atherton said he hears from corporate development teams of large companies that they get approached on a daily basis by startups and growing cybersecurity firms interested in strategic dealmaking and partnerships.
Atherton said he expects dealmaking to remain strong in 2021, after it picked up significantly in the second half of the year. More nontraditional buyers could help push the market, he said, pointing to Fastly acquiring Signal Sciences in August for $775 million as an example.
Where may investors and strategics look to in 2021 when analyzing the cybersecurity landscape? Following are subsectors that seem primed to have escalated interest in the new calendar year:
Analysing risk from the top
The recent SolarWinds hack—where Russian attackers penetrated several companies’ and government agencies’ systems through a piece of that company’s server software—is yet again another example of the imperfections of cybersecurity.
“It’s unfortunate,” said Dino Boukouris, founding director of Momentum Cyber. “It’s shocking, but not surprising, The reality is we are all fighting the same fight, but no one is impervious to attacks.”
Matt Kinsella, managing director at Maverick Ventures, said the SolarWinds hack may be an inflection point for the industry to look at how vendors share data.
“Vendors must exchange information so risk is clearer,” he said. “And that process should be streamlined.”
While some get excited about new network security tools and endpoint solutions, large third-party vendors provide the necessary infrastructure of organizations’ defenses. Once the full breath of the SolarWinds attack is understood, vendor risk management and companies that allow for that data exchange could see an uptick in interest.
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