Why You Should Invest In Cybersecurity Startups

Once you have been an entrepreneur for long enough you begin to see and hear the same tropes again and again, one you see around at the moment revolves around the current climate for startups given the turmoil in the public markets. It's a variation of the argument I heard when COVID came along and sounds something like “it's a tough climate for startups right now because of X”.

As a claim it sounds credible, but the statement lacks the wisdom of private sector startup experience. Given that wisdom you tend to take the view that X can be whatever crisis happens to be happening at the time,  just another day in the office. In our modern world we seemingly lurch from one crisis to the next, it is unlikely that things will change during our careers.

Our Sector Is Growing Rapidly

Despite the recent public market turmoil, the cybersecurity sector within the market has grown by approximately 12% in over the last three quarters, and that growth against the backdrop of public market uncertainty reflects the robustness of the underlying cybersecurity market. The sector overall is projected to reach $376.32 Billion by 2029, up from 139.77 Billion in 2021, and most analysts expect to see the industry grow at a compound annual growth rate of 13.4% over the coming few years with even the cynics projecting 9% CAGR at the low end of the growth projections.

If you take a longer term view than the public markets allow the cybersecurity industry outlook is so bright you need to wear shades. To a startup CEO it matters little what the public markets think because our startups aren't publicly listed, and although the inflation bothers us, it is something that is happening to everyone at the same time, a bit like winter. I am cold, you are cold, we take warmth from growth and life goes on.

The Returns Are In The Private Markets

Investors may not feel as flush as they would when the markets perform well, but the public markets are not the real economy, and those same investors are flooding into the private markets in search of higher returns than the public markets can currently offer them. Investors are combing the private markets for the next great idea or technology that will help their investment dollars beat inflation and the current generation of infosec entrepreneurs is happily providing vehicles for them to invest in.

The young people founding companies in the infosec space are light years ahead of where we were at their age. They have more vision, more focus, and more empathy than the cohorts who came before them and none of them want to work in an office for a tech giant. Some of them will reinvent the way we defend ourselves against our adversaries and come up with better solutions for dealing with organized cyber crime.

Do not think for a second that any large player in the industry has cybersecurity figured out, on a good day it might look like it, but in our darkest moments we insiders know that we are all still babies in a young space. The cybersecurity industry is still in its infancy, don’t let anyone tell you otherwise. It will be reborn again in the face of adversity, and in an ever changing world you should find this to be a reassuring certainty, because it is in such spaces that good ideas are born and the great startups evolve.

Savvy investors spot them as they germinate and claim their stake early on.

Great Startups Are Still Great Startups

A great cybersecurity model, startup, or technology is still just as great as it was before the public markets took fright, if that no longer holds true then perhaps it was not such a great idea to begin with? We can expect current trends in our industry to continue over the long term, cyberattacks will increase in frequency, threat actor groups will increase in sophistication, malware will evolve to beat our defenses, the adversary will reinvent themselves time and time again until they find the chinks in our armor.

Historically, this has never not been true and within that context there is a lifetime of work ahead for good startups with great technology. The markets go up and the markets go down, but historically they go up more than they go down and while this is something investors in the grip of a bear market tend to forget, it is a storm that startup founders must learn to weather throughout the course of their careers.

Cybersecurity Is In Its Infancy

If we dig a little deeper into my own niche within the cybersecurity industry the picture becomes even clearer. We live in the early days of zero trust, SASE and remote browser isolation cybersecurity, we have a long deployment road to walk before we see anything like mass market adoption, but that road contains millions of users.

We have barely scratched the surface of this market, there are hundreds of millions of users in play, and millions of organizations who have yet to adopt zero trust, SASE or RBI in a meaningful way. The only reason we know what these acronyms mean is because you and I dear reader sit on the very edge of innovation, we are cursed in that we can see a little further than most, the mark of this curse is knowing the acronyms.

No large vendor has cornered the cybersecurity, zero trust, SASE or RBI technology markets, nobody has come close because these markets are still in their infancy, for these markets sustained decades long growth lies ahead. Mass market adoption of a great idea does not happen all at once, it is a gradual process that occurs over the long term. It has never not been this way, and those of us who try to solve real world pain have always know that necessity really is the mother of invention.

Investment and M&A Activity Is At A Record High

Q1 of 2022 was a busy first quarter from a mergers and acquisitions perspective, we saw two hundred and forty five major investment transactions and seventy three startup acquisitions in the cybersecurity space alone, representing a staggering $7 Billion USD in investment volume and $12.2 Billion spent on acquisitions, splashing the cybersecurity industry with a 136% increase in financing value in the Q2/21 - Q2/22 period compared to the previous 12 months. Regardless of what the public markets are doing, the cybersecurity industry is roaring even if corporate development and venture capital teams seem to be a little more introspective than usual.

Global conflicts, geopolitical power struggles, rising inflation, public market sentiment tends to fade into the background when you are focused on investing into real solutions that solve real problems. Those of you who invest in early-stage cybersecurity startups, ones made up of small teams focused on solving real world problems, know that these are the startups that are getting bought and raising investment right now.

These startups are forced by the sheer dint of nature to focus on the pain points, and in the cybersecurity industry it is those who solve real pain that survive. The climate has never not been tough for startups, but happily a good startup has always been able to punch through the noise and become a great startup over the long term.

Doubly so in the cybersecurity space.

Stay focused on the pain points, remember that the most interesting cybersecurity investment opportunities have not yet made it to the public markets, and that startups with a real solution for solving a real problem stand a better chance than most of making it in a world where the vast majority of startups usually fail.

About The Author - Guise Bule is the founder of Secjuice, and the founder of remote browser isolation cybersecurity startup WEBGAP. He is definitely not qualified to give you financial advice, and being a startup founder he is definitely biased.