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Cybersecurity Funding Drops 58% From Q1 2022

Although venture funding struggled mightily in the first quarter, funding to cybersecurity startups specifically remained relatively even quarter to quarter — although well below the highs of the past few years.

Venture-backed startups in cybersecurity saw nearly $2.7 billion in the first quarter of the year, per Crunchbase data. That is a slight uptick from the $2.4 billion in the final quarter of last year, although it represents a 58% drop from the $6.5 billion such startups saw in Q1 2022.

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Perhaps more alarming, however, was the drop in deal flow in the sector. The first quarter saw only 149 deals announced — the lowest total in years and a 45% drop year to year.

A slow slowdown

The deal number may be a harbinger that there really is a slowing down in cyber funding — which has seemed pretty resilient despite the venture capital pullback.

The first quarter of the year was propped up by AI and quantum computing startup SandboxAQ raising a $500 million round in February, as well as two other rounds of more than a quarter-billion dollars raised by Santa Clara, California-based Netskope and New York-based Wiz.

In comparison, the last two quarters of 2022 — which saw a similar total venture dollar value when compared to Q1 — saw only one such round (a $401 million convertible note raise by Arctic Wolf). Both quarters also saw a slightly higher number of deals when compared to Q1 2023.

The top rounds of the first quarter this year in cyber include:

Some of those extremely large rounds likely helped keep last quarter’s dollar value high even as deal flow continued to drop.

In fact, deal flow has dropped for the past four consecutive quarters in cybersecurity.

Interestingly, the past quarter also failed to mint any new unicorns in the security space — per Crunchbase data — compared to eight being crowned in the first quarter last year.

Looking ahead

While the numbers may look down, it is important to remember that 2021 — and even to some extent 2022 — were anomalies when it comes to fundraising. While investors started to pull venture dollars back last year, the first half of the year still saw big numbers due to the delay in announcing rounds after they closed.

If this year continues the pace of the first quarter, it will surpass 2020 — which saw less than $10 billion go to cyber startups — in total dollars raised.

However, that is not to paint a bright picture of what is going on in cyber, which likely will face its fair share of headwinds.

First, companies have rolled back on spending, which even includes their cybersecurity spending in some cases. While ransomware attacks and hacks continue to be in the news — and companies spend on security — as the economy gets tighter it is logical that all IT budgets will start to get sliced.

The industry will also likely be impacted by geopolitical forces. Israel has proved to be an extremely fertile ground for cyber startups — spawning companies such as Check Point, Snyk, Wiz and countless others. The current political tensions there could hurt venture investment (as we talked about here) in the country, and that could disproportionately affect cybersecurity due to the robust security program in that country.

However, some large public cybersecurity companies have started to see their stock turn upward in the market, which could help out the startup ecosystem. Companies like Zscaler, Splunk and Okta — whose stock prices were down 30% or more in the last year — have seen their shares rise in the past six months. Cyber giant Palo Alto Networks also saw a nice pop in the last half year.

That could improve the quiet M&A scene, which usually excites investors. Those large companies may be more willing to do stock deals if their share prices continue to increase — as no company likes to offer shares when they are discounted.

Seeing successful exits of startups through M&A deals could cause VCs to again open up those checkbooks for more and larger rounds.


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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