Cybersecurity Market Sets Records for Venture Capital in 2021 and Expected to Continue Through 2022

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While most would probably prefer that the cyber threat landscape not be as vast or as active as it has become in recent years, there are always winners in private industry in every adverse set of circumstances. In this case, it’s the cybersecurity market. Venture capital flowed into cybersecurity startups in 2021, leading to a record $29.5 billion raised (more than double the amount seen in 2020).

More than 1,000 deals have been completed in total, with 84 over $100 million. 30 of these startups have crossed the $1 billion valuation threshold to earn the “unicorn” title.

Booming Cybersecurity Market Fueled by Growing Pandemic Threats and Technological Innovations

San Francisco-based Momentum Cyber, a leading financial advisory firm in the cybersecurity market, has collected and published these “snapshots” of relevant venture capital activity (looking at the activity of more than 3500 global companies) since 2016.

In addition to $29 billion raised in 2021 (which broke all previous annual records), the cybersecurity market saw $77.5 billion in total mergers and acquisitions (M&A) activity. The most active M&A sector was security consulting, with 50 deals in total over the year. There were 286 M&A deals, with a median disclosed value of $119 million. The largest of these transactions were the acquisition of McAfee by a consortium of investors for $14.1 billion, the acquisition of ProofPoint by ThomaBravo for $12.3 billion and the acquisition of Avast by Norton. Lifelock for $8 billion. Several other deals topped the $1 billion mark, including STG’s acquisitions of McAfee Enterprise Business ($4 billion) and FireEye’s product division ($1.2 billion).

In financing, there were 1,042 deals, with risk and compliance being the most active area (170 increases). There were 82 capital raises of more than $100 million, including $1.3 billion for cloud security firm Lacework, $605 million for cloud application platform Snyk and $550 million for Orca Security, focused on AWS and Azure. A total of 130 deals involving private equity firms were completed in 2021.

Lacework and Orca were also among the 30 new unicorns of the year. Average earnings multiples have increased significantly compared to 2020, from 7.1x to 28.2x last year. And several companies that made their public debut in 2021 shot up their stock prices immediately after: AI security firm Darktrace (65%), endpoint security platform SentinelOne (44%) and education platform KnowBe4 security (43%). A notable exception to this trend is payment security firm Riskified, which plunged 65% in value in the second half of 2021.

Aside from a few hiccups such as Riskified, cybersecurity market stocks in general had a great year in 2021. Leading the growth pack is enterprise security company Fortinet, which rose 147% in value. Other big winners in this area were Zscaler, Palo Alto Networks, McAfee and Mimecast.

Venture capital is betting big on cybersecurity

While the dollar amounts forecasted in M&A deals nearly quadrupled what was spent in 2020, the proportional increase in financing activity was well above overall M&A activity. acquisitions over the year. Venture capital activity increased in nearly every subsector of the cybersecurity market, but there were particularly large jumps in a few specific categories: risk and compliance, data security, application security, and enterprise security. terminals.

So what spurred all this venture capital interest? The most obvious answer is one of the correct ones; the general surge in cybercrime has sparked interest in defense and tools across the cybersecurity market, especially given the cluster of high-profile attacks and vulnerabilities in 2021 that have become mainstream topics even for people with no interest in technology issues (JBS, Colonial Pipeline, Kasera, ONS Group).

Another driver is the massive shift to remote working caused by the pandemic, which has also fueled the wave of cybercrime. Momentum Cyber ​​predicts that this trend will continue, but with an increasing emphasis on blockchain technologies as a source of security. “Zero trust” is also about to become a standard approach. The threat landscape is also expected to grow and worsen in 2022, fueling the trends of the past two years.

However, the most obvious factors are not the only ones. For example, cybersecurity is increasingly a topic on corporate boardrooms due to the potential costs of failure. Innovation in private companies has also strongly contributed to the interest of venture capital in the industry. The number of years of activity of some of the new unicorns can be counted on the one hand.

In addition to $29 billion raised in 2021 (which broke all previous annual records), the #cybersecurity market saw $77.5 billion in total M&A activity. #respectdataClick to tweet

Momentum CEO Dave DeWalt called this period the “golden age of cyber,” and given the numbers, it’s hard to argue with that assessment. However, he also warned that this wave will not last forever. DeWalt said he’s looking for cybersecurity market oversaturation to start cutting venture capital interest in 2022, as well as high-profile startup bankruptcies and shifting priorities coming in 2023.

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