Impact of Coronavirus Outbreak on Early Stage Venture Investment in Cybersecurity

“I suspect that COVID-19 will tighten further the investment criteria being applied with a keener focus on investing in a differentiated cybersecurity offering that can provide a more guaranteed return on early-stage investment.” Steve Durbin, Managing Director, ISF

The COVID-19 coronavirus outbreak will likely have an impact on early-stage venture investment in cybersecurity, but investors and industry professionals are optimistic.

Last week, Washington, D.C.-based cybersecurity venture capital firm and incubator DataTribe released a brief report on early-stage venture investment in the past decade. Using data from Pitchbook, the company analyzed investment activity for all early-stage ventures and separately for early-stage cybersecurity deals. The analysis covered accelerators, angel investors up to Series A, and venture capital seed and Series A funding rounds.

The information compiled by DataTribe shows that the number of early-stage cybersecurity deals in 2010 was only 87, but the number continued to increase over the next years, reaching 402 in 2015. In 2018 and 2019, the number of cybersecurity investments was roughly 1,200 each year, including approximately 400 early-stage cyber deals.

In terms of the amounts invested in early stages, DataTribe told SecurityWeek, the median deal size for cybersecurity seed funding was roughly $2.5 million in 2018 and 2019. The median size of Series A funding rounds in the past two years was approximately $10 million at a pre-money valuation of $20 million.

The number of early stage investments in cyber has decreased in the first two months of 2020 compared to the same period of the previous year, but DataTribe says the COVID-19 outbreak is unlikely to be responsible considering that it typically takes venture investments up to two quarters to close. However, the company does expect the coronavirus pandemic to have an effect on investments.

Steve Durbin, managing director of the Information Security Forum, a London-based authority on information security and risk management, commented, “I suspect that COVID-19 will tighten further the investment criteria being applied with a keener focus on investing in a differentiated cybersecurity offering that can provide a more guaranteed return on early-stage investment. Those early stage companies that can demonstrate this will be far more attractive to investors globally. The winners in my view will be those companies that can deliver an ethically-based, digital play on the use of data to deliver quantifiable and immediate value to CISOs of all size companies. This will include both internally focused and market driven data.”