Sergey Gribov is a partner at Flint Capitalan early stage venture capital fund investing in Israel, the US and Europe.
getty
CB Insights’ State of Venture Q1’22 report notes that venture capital investment fell 19% on a quarterly basis in the first quarter. Despite this decline, we have seen the Internet play an even greater role in the global economy, creating a need for enhanced cybersecurity in response to rapid advances in technology and hacking methods. This opens a door for companies to attract new VC investments by developing better cybersecurity tools.
However, cybersecurity is still at the forefront of investors’ minds, so it’s worth taking a closer look at the industry to see where VC funds are likely to be spent.
Cybercrime Outpaces Economic Decline: The Great Downturn or Market Stabilization?
Cybersecurity Ventures predicted the global economy would lose an estimated $6 trillion to cybercrime in 2021. If we measured this number by global GDP, it would be the third largest global economy behind the US and China. Current forecasts expect a 15% AGR for cybercrime. This means that companies will likely be willing to pay slightly less than the expected $6 trillion for better cybersecurity measures to prevent future losses.
At the end of 2021, the global cybersecurity market was valued at just below $185 billion, and the year-over-year figures for investment finance of cyber companies are also steadily following. AGR’s double-digit cybercrime estimates coupled with these growth rates support the idea that cybersecurity is poised for increased market share.
The unfortunate truth is that cybercrime is now one of the most lucrative illegal markets. It has evolved from solo young hackers to full-fledged syndicates who put millions into these illegal operations. While state-sponsored cyberwarfare is a sensitive topic, the fact remains that nations can now direct or indirect Fund hackers to carry out cyber-attacks that cost less and yield more than traditional military operations.
The unprecedented level of advanced cybercrime technology means that the cybersecurity industry must continue to innovate at a rapid pace to keep up. There are a few promising cybersecurity avenues for startups to explore, and I think this is where the funding will follow.
Industries to watch
Cybersecurity companies picked up $11 billion in 2020 (paywall) and $26 billion in 2021. By the end of 2022, funding estimates are $21 billion and are on track to show a substantial increase over 2020. This increase is largely due to a few key emerging trends, and I think their growth will interest investors:
1. Artificial Intelligence
A recent study found that more than half of IT security professionals are overwhelmed by the amount of security alerts they receive and cannot confidently prioritize and respond to them. To address this, startups are using AI to manage and prioritize the flow of data in real time.
Investors are taking note of this trend. Recent forecasts estimate that the AI cybersecurity market will be worth $35.43 billion by 2028, a CAGR of more than 23%.
2. Privacy and Compliance
Privacy regulation is a top priority in Europe, and the US is not far behind. In response to this, the data privacy market is expected to see a huge 40.8% CAGRleading to 25.85 billion by 2029.
Tightening data privacy legislation has opened the door for data privacy software startups to offer solutions such as cloud-based automation of privacy management and on-site monitoring of business practices to ensure they are compliant with market regulations.
3. IoT Security
As much as 98% of the IoT device’s data is unencrypted, which is a huge security risk. As organizations more fully embrace IoT, startups are capitalizing on this by offering security solutions that protect against malware and identity theft attacks.
GSMA estimates the number of IoT connections will reach 25.2 billion by 2025and the prediction is that the IoT security market will reach $61.6 billion by 2028.
4. Zero Trust
I think this is perhaps the most promising cybersecurity trend. Before technology reached the current level of integration into every aspect of our lives, companies could take a defense in depth approach to security. DiD uses layers of security controls to establish a perimeter within a system to keep it safe. That is no longer possible thanks to the popularity of cloud-based applications, working from home and other trends.
Companies are now using a “zero trust” approach to secure modern digital environments. Investors are noticing this and are giving money to retrofit systems with zero-trust technology. One of the largest checks was made to a California-based company for: $300 million. Other smaller teams have implemented zero-trust security frameworks that require proof of identity at each access point.
This successfully mitigates cyber-attacks from cloud-based computing, IoT access and global vulnerabilities to remote workforces. Almog Apirion notes that zero trust will continue to displace VPNs because, with zero trust, identity”is the new access key.” (Full disclosure: Apirion is CEO of a company in my portfolio.) It provides more controlled access to necessary resources without disclosing all digital assets.
Zero trust systems can also help solve compliance issues, making them even more attractive to businesses and investors. Research notes that 72% of global organizations are interested in adopting zero-trust technology.
Being successful in the current landscape
The cybersecurity space is overcrowded, so founders may face unexpected hurdles right now. Due to the competitive nature of the market, there is also less room for error.
Ultimately, my best advice for founders in today’s market is to differentiate by tackling a substantial problem in an interesting, effective way. This is an excellent way to grab the attention of investors, which is critical in the early stages.
Finding innovative cybersecurity solutions can position founders for future success as it not only interests investors, but also lays the foundation for building a large, profitable business in the long run. The internet will undoubtedly remain the pivot of our society.
Cybercrime costs the global economy $2.9 million per minute, and many companies are not equipped to defend themselves against these attacks. This means that cybersecurity will also become an increasingly important part of our lives. While investors can choose their valuations more carefully, companies with innovative, effective strategies can still attract significant venture capital funding.
ukbusinessupdates.com Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?
