Year in review: Security breaches fueling more deals

A flurry of security fundings toward the end of 2014 helped to emphasize the point that the security sector is a hot one for VCs to invest in.

No surprise, given the number of hacks that have occurred over the last year, including those involving retailers Target and Home Depot and most recently Sony Corp.

Outside of those high-profile breaches, however, security continues to be a top priority for businesses and corporate IT departments, as the nature of the threats continue to escalate.

Overall, about 200 U.S.-based startups in the broad sector of security focused on developing threat detection, infrastructure and related security technology raised $2.2 billion in funding from investors last year, according to a preliminary analysis of Thomson Reuters data. This is a slight bump from the year previous when 185 security startups raised $2.1 billion.

“Whenever the latest break-in occurs, it becomes a hot topic for people, but security has also become a board-level discussion,” said Steve Herrod, managing director at General Catalyst Partners. “Boards are focused on improving their IT security and more enterprises are focused on it. It’s a trend that’s growing.”

As data breaches continue to hit enterprises and retailers alike, VCs will no doubt continue to put more money into startups looking to fix the problems.

Last year, security startups to raise large amounts included Lookout, CipherCloud, SimpliSafe Inc and Skytap Inc, among others.

The end of the year also saw a number of deals in the space, including ThreatStream (backed by General Catalyst Partners), Area1 Security, DB Networks, Rapid7 and Menlo Security.

“This has become a busy time for security professionals as the amount of breaches continue to escalate,” said Herrod, who joined the board of ThreatStream.

Herrod said that are good reasons to expect venture’s enthusiasm in security to continue, since developments in mobile, virtualization and cloud technologies are also creating new risks for businesses.

In other words, expect cyber security investing to continue in 2015, as VCs back more deals, both large and small.

This story first appeared in affiliate magazine Venture Capital Journal, which is published by Buyouts Insider. Subscribers can read the full story and an accompanying table of security-related startups by clicking here. To subscribe to VCJ, click here for the Marketplace.

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