Investment in cybersecurity soars as exits pile up

A magnifying glass is held in front of a computer screen in this picture illustration taken in Berlin

Encouraged by a healthy exit market, venture firms invested more money in cybersecurity companies in 2013 than they did in each of the previous eight years.

U.S.-based VCs invested more than $900 million in 82 cybersecurity companies as of Nov. 26, a significant increase from the $663 million they invested in 77 such companies in all of 2012, according to Thomson Reuters data.

The 10 largest deals accounted for more than half of the total, and the year’s single largest deal accounted for nearly 20 percent of the total. AirWatch, a provider of mobile security and enterprise mobility management services, topped the list with $179 million in venture funding from Accel Partners and Insight Venture Partners.

Adam Boutin, a principal with Menlo Ventures, said he has started to see an increase in valuations as more VCs show interest in the space.

Investors remain bullish about cybersecurity because governments and corporations are spending more money to defend themselves. The U.S. government alone has budgeted more than $13 billion for cybersecurity in fiscal 2014, or close to 16 percent of the entire federal IT budget. Worldwide spending on IT security is growing at a compound annual rate of 6.6 percent and will hit $30.1 billion in 2017, according to research firm Canalys.

Along with increased spending on cybersecurity, VCs are also heartened by some big returns from previous investments in the sector. Look no further than the eye-popping ROI of FireEye, a provider of Web malware and security solutions that went public in September. FireEye had previously raised about $87 million from VCs, including Sequoia Capital, Norwest Venture Partners, DAG Ventures, JAFCO Technology Partners and Silicon Valley BancVentures. Following the IPO, those five venture firms held about 67 million of the company’s shares, which were worth more than $2.5 billion as of Nov. 26.

Following on FireEye’s heels, VC-backed email protection company Barracuda Networks pulled off a successful IPO in November. And now at least three other VC-backed cybersecurity companies have registered for IPOs or announced plans to do so, including LogRhythm, Mandiant and Zscaler.

This story first appeared in Reuters Venture Capital Journal. Subscribers can read the entire original story here. To subscribe to VCJ, please email Greg.Winterton@ThomsonReuters.com.

Photo of a magnifying glass in front of a computer screen by REUTERS/Pawel Kopczynski.

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