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Even though the payments industry is undergoing an unprecedented attack by fraudsters, funding of cybersecurity startups by top investors will drop somewhat this year compared to 2015, according to the latest data from CBInsights, a New York City-based firm that tracks venture-capital investment.
Total cybersecurity funding deals this year are expected to total 52, down from 56 last year. While dollars invested reached a peak in 2015, at $1.83 billion, CBInsights projects that number will shrink 35% this year to $1.19 billion. So far in 2016, the research firm counts 29 funding deals good for $657 million.
The drop in funding comes as the payments industry is already seeing a rise in online fraud as a result of the ongoing expansion in e-commerce as well as the U.S. migration to EMV chip cards, which is pushing criminals to less secure payments channels.
In its report, CBInsights is counting investment by so-called smart-money investors, a collection of some 24 venture-capital firms set apart for superior portfolio valuations and investment outcomes. The top five such firms are Sequoia Capital, Benchmark Capital, Accel Partners, Greylock Partners, and Andreesen Horowitz. Some of these firms are familiar to the industry as frequent investors in payments startups, including unicorns, or privately held companies valued at $1 billion or more.
Cybersecurity investment took off in 2014, following the disclosure of Target Corp.’s well-publicized card-data breach just before Christmas in 2013. While the top investment firms plowed $517 million into the industry on 37 deals in 2013, they did 59 deals the following year, good for $1.17 billion, more than doubling their 2013 funding level. The funding pace picked up even more in 2015 but now appears to be “tapering off,” in CBInsights’ words.
Looked at quarter-by-quarter, the top period for deals so far was the second quarter of 2014, when 20 deals were clinched. The top quarter for dollars invested, however, came more than a year later, when investors poured $736 million into cybersecurity startups on 17 deals in the third quarter of 2015.
Of nine cybersecurity unicorns, five achieved that status in 2015. The latest to reach that height is Cylance, an Irvine, Calif.-based specialist in artificial intelligence and machine learning that clinched a $1 billion valuation in June with a $100 million Series D round.
The other eight unicorns in cybersecurity, according to CBInsights data, are: AVAST Software, CloudFlare, Fore?Scout, Illumio, Lookout, Okta, Tanium, and Zscaler. Of these, Tanium, at $3.5 billion, carries the highest valuation.
—John Stewart
