While startups cashed in, total cybersecurity venture funding fell in 2016

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Venture capital firms invested roughly $3.1 billion into a record 279 cybersecurity companies last year, according to research published by CB Insights on Thursday. That figure represents a $600 million drop from 2015 to 2016.

From an industry standpoint, 2016 also saw a decrease in exits — otherwise known as business events in which a company is either sold or acquired. In short, investors had fewer chances to cash in. There were fewer than 90 exits in 2016, but there were 124 in 2015.

In similar fashion to years prior, a majority of cybersecurity venture funding was focused on early-stage companies, or startups, in 2016. These early-stage investments — known as Series A and seed stage rounds — typically range in value between $100,000 and $5 million.

The largest single funding round for a cybersecurity firm in 2016 totaled $180 million and went to Dallas-based StackPath. Other large rounds included Cylance’s $100 million Series D and Mobi Magic’s $100 million Series B round.

While total funding was down in 2016, based on CB Insight’s data, cybersecurity executives and investors are generally optimistic about what 2017 holds, as many analysts foresee a spending spree by the U.S. government and other allied nations.

In just two months, since the beginning of 2017, the industry has already attracted more than $300 million in funding dollars. On Wednesday, newly founded venture firm Trident Capital Cybersecurity — which spun out of Trident Capital in 2015 — announced it had raised a massive $300 million fund to invest in innovative security companies.

“Every new industry starts with a Pre-Cambrian explosion of new companies and then consolidates over time. 25 years ago we had hundreds of cellular companies. Today we have a handful,” said New Atlantic Ventures partner John Backus. “Cybersecurity is a broad spectrum word. The entire industry is not consolidating. Our need for ever evolving cyber security solutions is leading to wave after wave of cyber security startups … I think we will not only see continued investment in cyber security companies but that we will see increased investment in the cyber security industry.”
So I think we will not only see continued investment in cyber security companies but that we will see increased investment in the cyber security industry.

Information technology research and advisory company Gartner predicts cybersecurity spending to top $81.6 billion in 2017, underlining a 7.9 percent increase from 2016.

More than 4.2 billion records were exposed during data breaches in 2016 — which represents a considerable increase over the previous record of 1.1 billion that occurred in 2013 — according to cybersecurity consulting firm Risk Based Security, who published a comprehensive research report in January.

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