02 Aug Cybersecurity VC Funding Rolls On In 2022

Despite some layoffs, the market remains poised for growth

– David Braue

Melbourne, Australia – Aug. 1, 2022

Layoffs may not sound like an indicator of a robust cybersecurity startup economy, but Richard Seewald is confident that reports of sporadic firings is just the latest step in a reset as the cybersecurity venture capital community adjusts to the ongoing economic buffeting.

“Companies are sitting back today and looking forward, and trying to call where we are in terms of the economic cycle,” Seewald, founder and managing partner at Evolution Equity Partners, recently told Cybercrime Magazine.

That means “prudent” review of recurring annual expenditures, he said, which has driven conversations whose answer in some cases is to let staff go.

“Attractive growth companies are deciding to reduce some of their costs by these layoffs,” Seewald said, “and I think you’ll continue to see that we’re at a certain point in this cycle where, notwithstanding all of those positive indicators… companies are taking the opportunity to install some downside protection into the model.”

New layoff events at startups more than doubled from May to June, according to Layoffs.fyi, with 61,450 employees laid off at the tracked companies this year and firms like Snyk, Lacework, Cybereason, and OneTrust contributing to the layoff of more than 1,400 cybersecurity employees since May alone.

Indeed, the number of new employees laid off at the highest rate since COVID-19 lockdowns threw the business world into a tailspin in May 2020 — yet Seewald said rationalizing staff numbers is nothing new in the cybersecurity VC space.

Layoffs happen all the time as part of normal business activities and are usually unremarkable, he explained — but amidst concerns over inflation and economic disruption, “it receives more attention because of where we are in the cycle, and because of the size of the funding rounds.”

“Reducing staff, and then scaling up and scaling down, are all part of the cycle of growth of any cybersecurity company. … we have to look beyond this year and into next year.”

Outlook for 2022

That cycle of growth is taking a few detours this year after quarters of dizzying growth in cybersecurity funding, with a steady pipeline of deals that saw more than $23 billion flow to cybersecurity companies in 2021 — including 30 firms that each raised more than $200 million from investors eager to get a part of a sector that continues to spawn great ideas and promising business models.

“Best of breed cybersecurity companies still in the private markets are benefiting from those tailwinds of growth — and you’re going to see deals continue to get done across the spectrum of Q3 and Q4.”

There are signs of an “accelerated consolidation track,” he added, with a likely uptick in consolidation among many companies that were previously considering funding rounds or strategic partnerships.

“All of a sudden the valuation perspective has changed,” Seewald explained, “and that’s perhaps what we’ll see in the second half of the year, where consolidation and funding will continue along the lines of what we saw in Q2.”

Heading into 2023, he said, “we’re going to see a pretty healthy year for M&A in the cyber space.”

Overall, the industry is “more or less on target in terms of what happened last year” with regards to M&A activity and funding, he said, with boards, CEOs, and investors “looking at that ROI driven growth dynamic, and implementing that into the business plans and companies that they’re invested in.”

That likely spells strong times ahead for Evolution Equity Partners stalwarts like Pentera, SecurityScorecard, TrueFort, and Quantexa, as they capitalize on surging demand in areas such as red teaming, penetration testing, and security ratings.

“The whole red team segment has grown tremendously,” Seewald said, “and that comes as a result of demand from CSOs and boards to understand cyber posture systematically, and to do that on a regular basis.”

“It’s no longer once a year where you have the audited pen test; that 365 days a year approach now allows CSOs to understand cyber posture far more effectively.”

The push to tighten control over companies’ cybersecurity posture has also driven Evolution Equity Partners to invest into UK-based CybSafe, a security awareness training firm that recently raised $28 million in a Series B funding round led by Seewald’s firm.

Despite the global economic doldrums, Seewald said, the strong result for CybSafe reflects ongoing investor interest in cybersecurity solutions that deliver real value for businesses.

“We did our top-down, bottom-up analysis in that segment, looked at the top five companies and delved down deeper into each,” Seewald explained.

After analyzing each company’s management team, market approach, and product roadmap we assessed “what we thought was a next-generation player that would change the game, and drive significant value for organizations and governments around the world.”

Asked what he sees as the hottest prospects moving forward, Seewald nominated blockchain — a critical capability where “basic cyber hygiene… has left much to be desired.”

Noting the major problems caused by recent hacks of blockchain-based cryptocurrency exchanges, Seewald said, “I think work there in terms of security companies that address blockchain security over the next couple of years is going to be a tremendous opportunity for investors and entrepreneurs.”

– David Braue is an award-winning technology writer based in Melbourne, Australia.

Go here to read all of David’s Cybercrime Magazine articles.

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