Cyber security startups fall on harder times

Their early investors have been left without an easy or profitable exit.

Advertisements

SAN FRANCISCO (Reuters) – A wave of cyber attacks by criminals, spies and hacker activists should make these heady days for U.S. cyber security startups.

Instead, many in the crowded market are struggling to live up to their early promise. In some cases, the security products they developed have been overtaken by advances in cyber hacking, according to industry executives and venture capitalists. In others, larger competitors have come out with similar technology and locked down customers.

“I have never seen such a fast-growing market with so many companies on the losing side,” said David Cowan, a partner at Bessemer Venture Partners, a venture capital firm that has invested in the cyber security sector.

235783ab1d8cfeb

Venture capital continues to pour into the industry, driven by the belief that there is no end in sight to cyber attacks or companies’ need to protect themselves. Yet only a handful of startups have successfully sold themselves or floated in the stock market in recent years. (Graphic: tmsnrt.rs/2mzClbR)

The result is a number of these start-ups have become corporate “zombies” with little prospect of fetching a good price in an initial public offering (IPO) or becoming acquisition targets, experts said. Their early investors have been left without an easy or profitable exit.

Not only is the technology behind cyber attacks rapidly evolving, the nature of how the corporate world uses security firms is changing. To save money and trouble, some companies have consolidated their security work, using just a few large players rather than spreading business around.

Companies are also diverting money to lower-cost “bug bounty” firms that contract out researchers who help identify security weaknesses.

“Suddenly, we are in this situation where there are just too many vendors and too few can be sustained,” said Dave DeWalt, the former CEO of cyber security company FireEye Inc (FEYE.O).

“You’re starting to see companies go, ‘oh my gosh, what do I do? Can I get more capital, do I have to merge?’” DeWalt said.

Momentum Cyber, an advisory firm focused on cyber industry mergers and acquisitions, said it tracks 2,500 security companies today, almost double the number a few years ago. The firm’s co-founder, Eric McAlpine, estimates 300 cyber security startups launch every year.

Few of these are pulling off IPOs. What’s more, big software companies have become less willing to acquire cyber security products they believe they can develop on their own.

“The pipe dream days of selling companies at a rich price equivalent to ten times their revenue are gone,” said Tom Kellermann, chief executive of venture capital firm Strategic Cyber Ventures.

ForeScout Technologies Inc (FSCT.O), a provider of software that helps companies keep the devices of their employees secure, was the only U.S. cyber security company, excluding identity management providers, to go public last year. This compares to three cyber security IPOs in 2016 and four in 2015.

http://snip.ly/91dbi Continue without interruption

 

 

Author: compliance4all

Compliance4All, the ultimate continuing professional education provider offers you regulatory and compliance trainings from the industry's leading experts, but with one crucial difference -the cost. Compliance4All's objective is to be a platform that provides regulatory and compliance trainings with all the class and features that come with these trainings, at a lower price. Compliance4All seeks to make regulatory and compliance trainings low-hanging fruits. Industries We Focus On: • Trade & Logistics • Aerospace Defense • Banking & Insurance • Food & Beverages • Auditing/Accounting & Tax • Energy • Environment • Education • Automotive Transport • Science and Technology • Government • Construction • Electronics & Semiconductor • Operation • Engineering/Science • Purchasing & Vendor Relation • General counsel/Accountant • Geology & Mining • Documentation/Records

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s