The IT Nerd

Today DataTribe released the firm’s Q1 2023 Insights report, which assesses how the cybersecurity funding market compares to other tech, as well as how cyber funding compares to prior years.

John Funge, Managing Director at DataTribe provided this commentary:

Big picture, while the slowdown is painful in some cases, we see it as an overall healthy thing. The investing pace and valuations in cyber over the last few years have been overheated. With the economic headwinds, we are seeing a flight to quality where fewer funding transactions are happening with a higher bar for startups to meet. 

For enterprises, there are a number of potential implications that the market headwinds will have:

• Financial strength of vendors becomes a more prominent consideration:  The balance sheet of vendors may be more of a consideration in looking at existing and new relationships. If a vendor that is burning cash has difficulty raising a next round of financing,  that risk can flow onto customers. 

• Consolidation and M&A activity:  Larger cybersecurity companies will likely take advantage of the market environment to make acquisitions as valuations come down. There will likely also be consolidation through weaker companies not surviving — as well as less compelling product ideas not getting funded. The medium to long term benefit of this will be some rationalization of the highly-fragmented tech stacks that enterprises depend on. A potential drawback is that beloved products may end up in the hands of larger vendors that are less agile, harder to deal with, and not aligned with the enterprise vendor’s strategy.

• New products will promise to do the work of multiple current products:  In an environment where cyber spending is more closely scrutinized, startups will adapt and align value propositions to focus on cost reduction. Security leaders can expect new products promising to replace multiple current products.

• Marketing budgets in cyber will pull back:  CISOs and security leaders are the focus of a torrent of enterprise marketing firepower. Marketing budgets are often one of the first areas to be trimmed in a cost cutting environment. For enterprise security leaders, this may bring a welcome reduction in the intensity of cyber marketing. However, there’s some much marketing activity aimed at enterprise cyber leaders, it may not be easy to notice.

Currently, seed stage cybersecurity is largely buffered from the broadened economic forces. Entrepreneurs will continue to innovate, and we are seeing a continuous flow of great founders and ideas at the seed stage. As is often said, some of the greatest companies are born during the worst economies. We don’t see it any differently this time around.

You can find the live DataTribe Insights Q123 report here: https://datatribe.com/dt-insights-q123/. 

DataTribe, a cybersecurity seed investor, has released the firm’s Q3 2022 Insights Report highlighting how cybersecurity investing is trending this quarter compared to last year and the previous quarters.

According to the report, Q3 marked a continued decline in valuations across nearly all stages. The current economic headwinds are pressuring private capital markets like public markets. The exception is Seed investment activity in cybersecurity, which increased 37.5% from 24 to 33 deals YoY. 

You can read the full report here.