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Intelligent Machines

Why Venture Capitalists Love Security Firms Right Now

Cultural and technological trends are driving record investments in security startups.

High-profile companies are increasingly being targeted by cybercriminals.

Venture capitalists poured a record $2.3 billion into cybersecurity companies in 2014, a year marked by frequent reports of hacks on high-profile companies. Yearly investment in cybersecurity startups been on the rise for several years now, and is up 156 percent since 2011, according to CB Insights. The trend will likely continue, as 75 percent of CIOs surveyed by Piper Jaffray said they would increase spending on security in 2015.

Though the technologies offered by the startups probably won’t swing the balance away from the attackers, they could help businesses adapt to the strong likelihood of getting hacked, says Lucas Nelson, who focuses on security as a principal investor at Gotham Ventures. New technologies reaching the market could help victims of break-ins by reducing the amount of time it takes to detect hackers and reverse the damage they cause, he says.

A new class of opportunities has also emerged because so much business has been moved to the cloud during the past five years. “There hasn’t been a commensurate level of spending in cloud security,” says Nelson.

The number of venture capital dollars flowing into the industry is still relatively small, though. In 2014 it was roughly a tenth the size of the sum invested in the entire software industry, according to PricewaterhouseCoopers. But according to the same firm, the growth in security venture capital last year compared to 2013 outpaced the surge seen in the software industry as a whole.

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