Valuations Rise, But Venture Investors Still Jazzed About Security


Private company valuations for security companies are up, but venture investors remain excited about putting to money to work.

There is no secret why. Governments and corporations are under attack from cyber hacks, and IT budgets are being freed up for products and services to strengthened digital defenses.

“It’s back to a very top of mind investment category,” said Andreessen Horowitz board partner John Jack during a panel discussion Wednesday at Stanford University. “If anything now, it’s got uncapped potential.”

But so, it appears, do valuations. By some measures, private company valuations for security companies have more than doubled in the past two years. That means a startup receiving a pre-money valuation of $5 million a couple years ago might receive as much as $12 million today, say venture insiders.

While that gives investors pause, it so far hasn’t brought security funding to a standstill. Last year venture capitalists invested $1.02 billion in security startups, an increase of 5% during a year when venture investing overall fell 10%, according to data from peHUB publisher Thomson Reuters. The increase comes on top of a more substantial 94% rise in 2011.

In today’s environment, entrepreneurs with attractive companies frequently get multiple terms sheets and private equity firms orchestrate rollups. A lot of indiscriminate capital wants to get involved, says Robert Ackerman, a managing director at Allegis Capital.

But longtime security investors say they continue to look both near and far for opportunities. They point to fertile areas outside of Silicon Valley that include Washington, D.C., Atlanta, Russia and Israel, which has risen again on the venture radar.

One investor, Alberto Yepez, a managing director at Trident Capital, says he invested last year in the Spanish company AlienVault. Ackerman points to the University of Maryland as a place of interest. “That is certainly an area to watch,” he says. “It’s not all about Silicon Valley.”

Another active investor, Asheem Chandna, a partner at Greylock Partners, presses ahead in Silicon Valley. His Skyhigh Networks came out of stealth recently and aims to help companies better manage and provide security for cloud storage services, such as Box.

With successful IPOs last year from Splunk, Infoblox, Palo Alto Networks and even Proofpoint, and more likely on the way from candidates such as FireEye and MobileIron, “Enterprise security is clearly back,” says Chandna.

Photo of John Jack taken by Mark Boslet.