VC firms target next-generation cybersecurity tools

August 16 (Preqin News) – San Francisco-headquartered cybersecurity start-up, Resilience Cyber Insurance Solutions, has raised $100mn in its latest financing round to help develop a platform aimed at helping firms tackle increasing cybersecurity threats.

The series D round, which brings Resilience’s total funding to more than $225mn, was led by Intact Ventures and included contribution from Lightspeed Venture Partners, among others. The capital will be put toward development of Resilience Solution, which was launched earlier this year and helps users quantify and manage their risk of cyber attack.

The announcement comes as economic slowdown, increased geopolitical friction and the application of generative AI as a hacking tool increase the risk of cyber attacks, while tougher economic conditions, not least higher interest rates, are contributing to tightening in venture capital (VC) fundraising.

Despite committing considerable investment to secure themselves against such attacks, firms continue to be successfully targeted by hackers looking to exploit even the smallest weaknesses in IT defences. British Airways, British broadcaster the BBC, and Nova Scotia provincial government were high-profile victims reportedly targeted by a Russian cyber gang in June this year. That incident followed an attack on business process services provider Capita in March 2023 which, the company said, could cost it up to £25mn ($31.9mn). 

According to blockchain analytics firm Chainanalysis’ mid-year report published in July, ransomware attackers – who normally insist on cryptocurrency payments in their ransom demands – are on track to extort the second highest amount on record in 2023, having extorted nearly $450mn through June. IT infrastructure support services provider, AAG IT, reported this summer that cyber attacks globally increased by 125% through 2021. In 2022, data breaches cost affected businesses an average of $4.35 million, up from $4.24 million the previous year.

Commenting on the close of its latest round, Resilience CEO and co-founder, Vishaal Hariprasad, said: 'The increase in ransomware attacks proves that there are longstanding gaps in today’s cybersecurity and cyber insurance practices.' Enterprises need a way to look at their cyber risk in an 'integrated, economically efficient, and predictable manner', he added. 

Preqin data shows that, as of August 16, cybersecurity start-ups have raised $4.9bn so far this year, a steep decline from a record $21.6bn in 2021, when pandemic-driven demand for online services turbocharged investor interest. Companies based in the US, the world’s largest cybersecurity market, have secured the most funding with a total $3.4bn, down from $6.2bn in the same period a year earlier, followed by China ($310.8mn, down from $452.8mn year on year) and VC tech-hub Israel ($309.6mn, down from $1.1bn the same time last year). 

While fundraising across the sector as a whole is proving tougher, capital continues to roll in to start-ups developing next generation tools to combat more sophisticated and more frequent hacking attacks. These include machine learning, which plays a vital role in improving security by identifying patterns in malicious behaviour, then detecting and blocking potential threats that could penetrate computers. Firms are also exploring the human behavior factor in cyber security, which has attracted investors to support star-tups developing phishing simulation tools. 

What is not in doubt is that the need for new technology to keep ahead of the cyber crooks will continue, underscoring the value and demand for VC in funding the sector’s evolution. Moving more business operations, shopping and entertainment activities online creates increased opportunity for hackers to find their prey with weak defences. As cybercrime becomes more sophisticated and more frequent, so must the security protection. 

As Alberto Yépez, Managing Director of ForgePoint Capital, said at the launch of his firm’s cybersecurity initiative with Spanish bank BancoSantander last October: 'Just as cybercriminals operate globally, cybersecurity innovation knows no borders – the opportunities are boundless.'

This year's highlights and numbers*:

• Early-stage has dominated deal flow, with 75 seed rounds, followed by 54 series A transactions, and 14 series C rounds. 
• With IPO listings (1) and secondaries (4) slowing, trade sales have dominated exits with 30 transactions.
• In May, VC investment manager 33N Ventures launched with a fundraising target of €150mn for investing in cybersecurity and infrastructure companies in Europe, Israel and the US. Spanish fund manager Alantra is among the partners in the new firm.
• Lightspeed Venture Partners tops the list of most active cybersecurity VC investors with 6 rounds so far this year, followed by Sequoia Capital, Ten Eleven Ventures, and Bessemer Venture Partners (4 investments each). 
• Sequoia Capital, Kima Ventures, and HashKey Capital are the most active seed investors with 3 rounds each, while Ten Eleven Ventures and Moore Strategic Ventures have dominated series B with 2 investments each. Bessemer Venture Partners led series A with 2 transactions, while Lightspeed Venture Partners dominates series C and D with 2 investments for each round.