Security Investing Is Poised For Active Year

Online security is ready made for venture capital. Every time an emerging company finds an anecdote to a security threat, another vulnerability appears. So a new innovation is needed.

With this continuous cycle at play, it is no surprise this year’s venture investing looks poised to match, if not exceed, last year’s deal making. Add to that Imperva’s successful November IPO and sentiment is good.

This enthusiasm is evident at Greylock Partners, which has made security investing a greater priority for the firm this year, says Partner Asheem Chandna. “I think the sector is robust. There are a lot of IT customers out looking for solutions.”

Other long-time security investors Kleiner Perkins Caufield & Byers and Trident Capital say they expect investing to keep a similar pace to last year’s. There is a big opportunity to create next generation companies to rival the Symantecs and McAfees of the market, says Trident Managing Director Alberto Yepez (pictured).

“We’re looking for the hot company in mobile security,” he added at the IT Security Entrepreneurs’ Forum at Stanford University on Wednesday. “We haven’t found it yet.”

Already a number of promising competitors are attracting the attention of VCs. Palo Alto Networks, for instance, but also FireEye, BlueCava and Truste. More are likely. Venture investors poured $550 million into 41 security startups over the past six months, and now private equity firms are stepping into the space, says Bob Ackerman, a managing director at Allegis Capital.

“This is a significant area of activity” and a top priority at Allegis, says Ackerman.

Providing encouragement to investors is the likelihood that more liquidity is on the way. Imperva sent imaginations soaring when it sold shares to the public at $18 in November. They closed at $38.90 on Wednesday.

More IPOs and more M&A are likely this year, says Chandna. Already companies such as Proofpoint and Avast Software wait on file.

Security is a hard problem to solve, says Ackerman. Companies with promising products fill a real need.