Investments Grow As Cyber Security Demands Spike



Dan Gunderman
11/21/2017

As threats to the enterprise increase in intensity and ferocity, there is a growing market for investors who are contributing heavily into technology they hope will remedy – or standardize – the cyber security field.

For venture capitalists, cyber security is a desirable market segment, as technology races to catch up with the rapid pace of attacks. The rationale, it seems, is that joining ranks with well-funded cyber technology companies will prove fruitful as they help eradicate various nuisances.

The market is quite active, with venture capitalists funneling a reported $3.1 billion into 300 cyber security startups in 2016, according to statistics relayed by CNBC. Two heavily funded companies include Tanium (which has raised $395 million for its endpoint protection technology) and Lookout (which has raised $281 million for its mobile security tools). According to CB Insights, the two startups are valued at more than $1 billion.

The need for cyber security solutions comes as a growing number of Americans experience breach-type incidents – in fact 64% said they’ve been the victim of a data breach, according to the Pew Research Center. The think tank says about half of the country does not trust the federal government or social media sites to handle their digital data.

Even with the uptick in incidents, and the inundation of security solutions, the space is growing at a modest 10% per year, according to venture capitalist Rick Grinnell.

There is Federal Trade Commission (FTC) regulation at the organizational level, plus a growing number of state and even federal laws outlining cyber security policy. There is also the overarching National Institute of Standards in Technology (NIST) Framework, whose articles outline proper cyber security behavior for the private sector.

See Related: Consumers More Prone To Cut Ties With Breached Companies

Despite these various attempts to govern the industry, cyber security very much remains an enigma. Perhaps that is why an estimated $90 billion has been injected into it.

One major factor that these tech investors must be aware of, however, is the frequency of exploitation. That is, hackers sidestepping protections offered by a vendor, or exploiting the grid that is already there. If this unfortunate end is realized, a company’s value could immediately plummet.

Perhaps this has ignited a new fire beneath entrepreneurs, however, who can operate in these high-stakes environments and hope to create or back technology that becomes standard practice.

To achieve that end, firms like Socure have been active in the space – and their growth shows it. The firm, which specializes in digital identity verification analytics technology, has received close to $30 million in funding and has seen its revenue skyrocket (600%) in the past year.

Yet the opportunities abound, even for private investors. Different cyber security investment options include the ETFMG Prime Cyber Security Exchange-Traded Fund (ETF) and the First Trust Nasdaq Cyber Security ETF. ETFMG trades for about $30 per share, while First Trust goes for $22. Both have experienced some growth within the last year.

See Related: Data Breaches Surge 164%, Cost Enterprises $52B In 2017

Investors have also rallied behind specific businesses and technologies. One of the latter movements includes blockchain, which uses isolated cryptography to secure data.

Also worthy of discussion is the perennial powerhouse Microsoft, whose advances in cloud security could prove fruitful in the space.

Some cyber security-minded folks appear to be steering investors in the direction of Advanced Endpoint Protection, breach detection systems and web application firewall technology.

On a macro level, how long cyber security investing will remain a hot topic is unknown – as the industry can be quite disparate in its efforts. Because cyber security appears to always be in flux, its trajectory is hard to forecast.

For the enterprise, the market landscape can be a good barometer, insofar as detecting just where the industry lies – and where it’s going, and whether it carries public support. That said, these opportunities might benefit the consumer, but they also assist the enterprise security professional who’s attempting to bolster his or her defense and glimpse the latest (and most practical) advances.