VCs Increased Security Investing Last Year

Cyber attacks rage against American businesses. Companies including Apple, Google, the New York Times and NBC find themselves in the crosshairs.

Government is not immune. Two weeks ago, President Obama sounded the alarm during his State of the Union address. He warned that hackers intending to sabotage infrastructure such as the nation’s power grid and air traffic control system call for a strong response, including greater information sharing between government and industry.

So what is a VC to do? Apparently put more money into startups developing creative solutions to tomorrow’s security problems.

Last year they did just that; security investing rose five percent to more than $1 billion at the same time overall venture investing fell. The increase came after a hefty 94% jump in dollars committed in 2011, according to data in the MoneyTree Report, compiled by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters. Last year saw 113 deals, up from 111 in 2011.

VCs clearly have dollar signs in their eyes. Companies such as Imperva, Palo Alto Networks and Splunk have launched successful initial public offerings in the past 16 months. More are likely to follow.

While the president’s call to arms by itself might not spark another boost in venture capital investing, VCs have security in their gun sights, says Robert Ackerman, managing director at Allegis Capital. Security remains a big opportunity.

Ackerman says he divides his investment interest into two parallel tracks. The first is filling holes in computer products of the past, which were developed at a time when security wasn’t the focus it is today. The second is to come up with new gear designed to be inherently secure from the start.

One specific target this year is mobile security, says Ackerman, particularly how to authenticate and secure wireless devices. This includes device-to-device communications. Allegis portfolio company Symplified already targets this market.

Another area of opportunity stems from the adoption of cloud computing, a complex assortment of technologies still in their early days. With new cloud infrastructure rolling out, opportunities arise to protect data in motion, to provide layered defenses against things such as hacking, and to monitor and analyze traffic on a network.

Going hand in hand with this are improvements to traditional network and computing infrastructure, he says. “We will be looking at those kinds of approaches,” too. This might include enhanced Web site security and guarding sites against big botnet attacks. Already his Shape Security investment focuses on Website protection.

“There is an element of an arms race,” says Ackerman. A phalanx of venture capitalists appears eager to keep up the fight.

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