VCs Pump Cash Into Security Startups

A significant rise in cybercrimes and corporate hacking means that cybersecurity equipment and software companies are enjoying a real upswing. Venture capital firms are taking note and pouring cash into startups in the sector, according to the Los Angeles Times.

CybersecurityAlienVault of San Mateo, for instance, has raised $55 million in three rounds since January 2012. The company snagged seven top security executives from Hewlett-Packard, many of whom had worked at Fortify Software, a San Mateo security company HP bought in 2010 for $258 million. “There’s more vulnerability than there’s ever been,” said Glenn Solomon of GGV Capital, an investor in AlienVault. “And the possibilities to attack these places profitably and successfully are high.”

HP recently created a business security software unit that includes many of the companies it acquired, Fortify among them. Meanwhile, Cisco Systems acquired Sourcefire for $2.7 billion and Whiptail for $415 million. Chris Young, senior vice president of Cisco’s security group, told the Times that buying startups was a necessary strategy to stay ahead of competitors. “The way to describe it is that [it’s] almost like the industrialization of threats,” Young said. “So the shelf life of security products is decreasing because the threat landscape is moving so rapidly.”

According to CB Insights, cybersecurity startups have attracted $1.4 billion in venture capital across 239 deals in the past year. Deals jumped 19 percent in 2013. CB Insights also followed 78 cybersecurity firms that were either acquired or launched an initial public offering last year. In September, San Jose-based FireEye had its stock double on the first day of trading. Now, VC firms are adding partners with security expertise.

But with the quickly rising valuations, industry experts also worry about a slowing of acquisitions. “What I always say is that first we have the innovators,” Venky Ganesan of Menlo Ventures told the newspaper. “Then you have the imitators. Then you have the idiots. We’re a long way from seeing the idiots. But we have all the indicators that we’re headed in that direction now that everyone is interested in this space.”

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