Cybersecurity Startups Venture

Cybersecurity Funding Remains High Even As Venture Cools Off

Illustration of masked thief peeking through keyhole on laptop screen.

Funding to venture-backed cybersecurity startups continues at an impressive clip—although significantly off the record high set last quarter.

Venture dollars invested into cyber startups hit almost $6 billion in the first quarter, according to Crunchbase data. That marks a nearly 50 percent increase from the first quarter of last year—and would put it on pace to break the all-time high for one year set last year with more than $20 billion poured into the space.

Deal flow also remained on par with the same period last year, with 189 funding rounds being announced compared to 179 for the first quarter of last year, according to Crunchbase.

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However, the first quarter marks a significant decline from the almost $8.2 billion invested last quarter—in itself a record high. The fourth quarter of last year also saw a massive 232 deals announced.

The first-quarter numbers also show some peaks and valleys. While January proved strong with about $1.9 billion invested, February saw a huge spike to $2.7 billion. However, March dipped to $1.3 billion.

Nevertheless, the first quarter as a whole appears strong despite some headwinds being seen in the venture market. There were 17 nine-figure rounds that went to cybersecurity startups last quarter, including three rounds of a quarter-billion dollars or more:

Will dollars dip?

The numbers likely do not come as a surprise to those who follow the market; cybersecurity funding has been on the rise for years as new hacks and breaches seem to occur daily. Just last quarter alone, the Okta breach made huge headlines, and concerns continue to swirl about potential Russian hacks as geopolitical issues continue to simmer.

Those who invest, however, say some of the same trends that affect many other venture-backed startup sectors can also be seen in cyber to a degree.

“These numbers are not surprising, and cybersecurity is indeed showing its resilience,” said Ofer Schreiber, partner and head of the Israel office for cyber venture firm YL Ventures.

“That being said, we may see a certain balancing out of the cybersecurity industry in accordance with the rest of the market, as we witness higher levels of uncertainty from later-stage investors,” said Schreiber, pointing to examples such as slower processes, lower valuations and smaller rounds being contemplated.

“There are cybersecurity companies that raised extraordinary rounds at extreme valuations in 2021 and will struggle to justify up-rounds this year, as the revenue multiples may not add up,” he added.

Unicorn growth

Valuations in the space remain high. Eight new companies were newly minted as unicorns in the first quarter of the year—including New York-based Axonius and Dallas-based Island last month—according to Crunchbase.

However, Alberto Yépez, co-founder and managing director at Forgepoint Capital, which specializes in cybersecurity and infrastructure software investments, said he does expect a stabilization of values.

“Throughout 2021, we saw many new investors coming into the private investment market driving valuations to new highs in order to gain access to deals,” Yépez said. “In 2022, we expect valuations to normalize as new investors coming into the sector retrench and take a pause.”

An accelerated wave of market consolidation also could hit the sector, said Yépez. Companies that raised money at higher valuations will have to decide between lower-valued follow-on rounds or joining forces with established players looking for innovation and expansion of their addressable markets, he said.

Companies like Cloudflare and SentinelOne, and even Google—which bought Mandiant for $5.4 billion—all made significant deals in the quarter.

“Cybersecurity is a hot market, and the flames are just getting started,” Yépez added.


Cybersecurity is defined by the industries of network security, cloud security and cybersecurity, according to Crunchbase data. Most announced rounds are represented in the database, however there could be a small time lag for rounds reported late in the quarter.

Illustration: Dom Guzman

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