Data available in cyberspace can be accessed by anyone and from anywhere in the world. A person with good knowledge of networking and computer systems can infiltrate through private networks of organizations by using just a laptop and a steady internet connection. The data transmitted within such private networks are often confidential and very valuable to the organization. Hence, cyber security is crucial for the continuity of business. As per a report by AGC Partners, the expenditure on cyber security has grown from $2 billion in 2003 to over $85 billion in 2014.
With the majority of IT operations quickly shifting to online servers, specifically cloud based servers, VC firms have deployed specialized teams to identify and study opportunities in the cloud security segment.
Startups which provide cyber security follow different approaches and have different strategies to tackle cyber-attacks. Security can be provided on the customer front to protect customer data or on the client front to protect internal company data. There a few startups which also focus on providing security for both customer data as well as internal company data. They do this by integrating hardware and software systems within the firm. Venture Capitalists fund cyber security startups by studying in detail, their approach and long-term strategies. Intel Capital, Accel Partners, Kleiner Perkins Caufield Byers and Sequoia Capital are the leading corporate VC firms to invest in cyber security.
Initially funded by Angel Investors, cyber security startup firms soon managed to catch the attention of big Venture Capitalists. OKTA IT, Symplified, SailPoint Technologies, Postini and BillGuard are few of the cyber security startups to close multi-million dollar deals from Venture Capitalists. Last week, cyber security firm Distil Network Inc., raised $21 million dollars in Series B round funding from Bessemer Venture Partners. This Arlington based tech firm focuses on identifying user traffic and differentiating the genuine users from bots. According to Distil Network Inc., 59% of user traffic are bots. So far, the firm has raised over $35 million to develop its cyber security technology.
Yesterday, Splunk, a software development firm based in California, announced acquiring cyber security firm Caspida for a large sum of $190 million. Mergers and acquisitions are the common exit strategies followed by VC firms operating in this domain. However, few VC funded startups have even had successful IPO listings in the last five years. VC backed MobileIron was valued at $670 million whereas Imprivita was valued at $340 million for their IPO launch last year. Last week, Rapid7, a cyber-security firm based in Boston also announced its intentions to go public and raise $80 million through an IPO.
Today internet has expanded way beyond personal computers and laptops. Even our day-to-day objects such as toothbrush, cars, wrist watches, etc. are connected to the internet. Access to all of these daily objects is just a click away for cyber criminals. The widespread and ever-expanding use of internet, continues to present cyber criminals with ample opportunities for cyber theft. This in turn increases the demand for cyber security solutions. Looking at the long-term potential in this sector, Venture Capitalists continue to fund startups specializing in cyber security.