Alex Cutulenco | Ubika Research Analyst | February 11, 2016: “War will not solely be fought with bombs and bullets – instead, war will finds its place electronically.” With that in mind, if the private markets and the added attention to the industry by the U.S. President himself is any indication, we should see cybersecurity stock valuations start to rise.
After years of mega-breaches to corporate and government securities/networks, U.S. President Barack Obama proposed to sharply increase cybersecurity spending to $19 billion on February 9, 2016.
Warned by his top intelligenceofficial that computer attacks were among the most imminent security challenges facing the United States, the President also announced plans to launch a $3.1 billion Information Technology Modernization Fund to retire and replace aging systems in the U.S. federal government. These requests show the White House’s intent to make cybersecurity a priority in the final year of Obama’s presidency.
Looking at Google Trends for the word “cybersecurity,” it shows that the term has generate an exponential growth in interest (relative to other searchable terms on Google).
Figure 1: Gradually Exponential Rise in Interest for “cybersecurity” over the last 10 year
Source: Google Trends
As more valuable information migrates to digital channels and the Cloud, corporations continue to run the risk of high-profile data breaches. As a repercussion, cybersecurity startups have experienced consistent year-over-year growth in funding and deals since 2011. Investment has grown from $1.1 billion in 2011, to $3.8 billion in 2015, a 235% increase (as according to CB Insights, a Venture Capital Database). The all-time high funding total (of 332 deals) in 2015 was bolstered by large rounds to well-funded companies, including Tenable Network Security‘s $250M Series B, Tanium‘s $120M Series G, and Cloudflare‘s $110M Series D.
Figure 2: Global Cyber Security funding raised
Source: CB Insights
Figure 3: Global Cyber Security funding, by geography
Source: CB Insights
Some of the more recent financings include:
– UK SaaS cybersecurity startup Digital Shadows raises $14m Series B, in a round led by Trinity Ventures that includes Storm Ventures, TenEleven Ventures, Passion Capital and Paladin Capital Group. (Feb 10, 2016)
– Israeli cybersecurity company Hexadite Inc. today closed $8 million in a Series A funding round from Hewlett Packard Ventures, Ten Eleven Ventures, and YL Ventures, who also invested in Hexadite’s seed round. (Feb 10, 2016)
– Canadian cybersecurity startup eSentire Raises $14 million from a group led by Edison Partners and Georgian Partners. (Feb 3, 2016)
– San Jose-headquartered Skybox Security announced today that they have closed a whopping $96 million investment from private growth equity firm Providence Strategic Growth. (Feb 3, 2016).
– Network security startup Fireglass just announced the close of a $20 million Series A funding round led by Lightspeed Ventures and FireEye investor Norwest Venture Partners. (Jan 26, 2016).
– Mutual fund giant Fidelity is investing $50 million in Malwarebytes, a cybersecurity startup. (Jan 21, 2016)
– Cybersecurity startup Pindrop raises $75 million Series C funding round led by Google Capital (Jan 21, 2016)
– Internet of Things (IoT) focused cybersecurity firm ForeScout, Inc. has raised $76 million Series G at a $1 billion valuation in a round led by Wellington Management Group (Jan 21, 2016)
As for the publicly-traded companies, cybersecurity stocks have largely underperformed, with an average share price drop of 24.6% over the last 52 weeks.
Figure 4: Public Cybersecurity Companies
Source: Thomson Reuters (02/10/2016)
If the private markets and the added attention to the industry by the U.S. President himself is any indication, we should see public market cybersecurity valuations start to rise.
Alex can be reach at: alex@gravitasfinancial.com
Read more analyst insights from Alex Cutulenco
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