For the fourth straight quarter, funding to VC-backed cybersecurity startups decreased—as even one of the most resilient industries showed it is not immune to the venture capital pullback according to a Crunchbase research.
The recently ended third quarter saw only $2.6 billion go to startups in cyber, the lowest total since the same quarter in 2020, which saw $1.6 billion invested, according to Crunchbase data.
“The market’s fluctuations have affected all tech sectors in the past six months,” said Ofer Schreiber, partner and head of the Israel office for cyber venture firm YL Ventures. “We’ve definitely seen reactions in the cybersecurity sector that coincide with the general wariness of both investors and vendors.”
Deal flow diminished in the quarter, which saw only 124 funding deals announced—the lowest since the third quarter of 2014.
Despite the downward trend in venture funding for the sector, several companies saw big rounds in the third quarter. The three biggest rounds of the quarter were:
In July, San Francisco-based cyber insurance startup Coalition closed a $250 million round at a $5 billion valuation. The new cash comes less than a year after Coalition raised a $205 million Series E at a $3.5 billion-plus valuation.
Also in July, Switzerland-based cybersecurity and data protection firm Acronis raised $250 million from institutional investors including BlackRock that valued the company at more than $3.5 billion.
Last month, San Mateo, California-based cloud-managed building security provider Verkada closed a large $205 million Series D led by Linse Capital that valued the company at $3.2 billion.
While the Q3 numbers may not paint a rosy picture for startups looking to raise money, it should not come as a shock. Most of the large, publicly traded cyber firms are down year to date also, with some such as Fortinet and CrowdStrike down 10% or more.
It’s also important to look at the past for some perspective.
Although it may be the lowest quarter since 2020, the first three quarters of 2022 have already surpassed the total amount of venture capital raised in 2020. Already this year, startups have seen nearly $13 billion of funding, compared to $8.9 billion in 2020.
Managing Director at Insight Partners who invests in cybersecurity, Stephen Ward, said he has noticed a slowdown in cyber investments given the current economic pressures. However, cybersecurity has proven to be very resilient during these times, especially considering the geopolitical climate and how that has increased concerns over cyberattacks.
Regardless, the sector has decelerated and startups need to be careful when it comes to money.
“Founders are continuing to proactively manage their burn rates and operate more efficiently to extend their runways,” said Ward.