Navigating the brave new world of cybersecurity investing


Venture capital firms invested $3.1 billion in nearly 300 cybersecurity startups in 2016, according to research firm CB Insights. Top-funded, privately held cyber companies now include Tanium, which has raised about $395 million to support its endpoint protection technology, and Lookout, which has raised about $281 million and secures smartphones. The two are each valued at more than $1 billion, CB Insights reports.

It’s no surprise money is pouring into the cybersecurity sector: About 64 percent of Americans have experienced a data breach, according to Pew Research Center. Around half of Americans do not trust the federal government or social media sites to protect their data, Pew found. The Identity Theft Resource Center has uncovered 1,120 data breaches to date this year, with some 171 million records exposed.

Yet, despite the flow of dollars into the industry — to the tune of about $90 billion — it’s growing somewhat “slowly,” at about 10 percent a year, Grinnell said.

To top it off, “the bad guys have more money to spend than the good guys,” said Vikram Phatak, CEO of NSS Labs in Austin, Texas. NSS Labs creates independent performance scorecards for security company products.

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In fact, one of the biggest threats to cyber investors is that their technologies may be proven to have holes or be exploited. If they are, their value essentially becomes negative, said Grinnell at Glasswing Ventures.

That hasn’t stopped entrepreneurs from trying to create the holy grail that banks, health-care companies, credit bureaus and card issuers can rely on to protect sensitive personal data.

“Data is the new type of petrol … it’s an incredibly large space that has become more and more complicated,” said Sunil Madhu, CEO of Socure. The firm is a provider of digital identity verification predictive analytics technology that recently secured about $14 million in a series B round led by Commerce Ventures (raising about $27.5 million to date).

Socure’s revenues have grown 600 percent over last year, Madhu said, and its valuation is pegged at $55 million. Three of Madhu’s five ventures have been in cybersecurity.

Venture capital firms aren’t the only ones able to capitalize; individual investors also have a few publicly traded opportunities to gain diversified exposure to the sector, such as the PureFunds ISE Cybersecurity ETF and First Trust Nasdaq Cybersecurity ETF. Both have performed well this year, with the former trading at about $30 per share, up from about $26 a year ago. The latter, meanwhile, is trading at about $22 per share, up from about $19 a year ago.

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