Much has been reported on the declining venture capital (VC) deals across the cybersecurity market, but is that true? The answer depends on how you look at the question. If one were to focus on the number of deals, the answer would be no. If one were to look at the size of the individual deals, the answer would be yes.
The number of investment deals per month is slightly less than the ensuing days after the pandemic shutdown, but the average individual dollar value of the deals has decreased substantially compared to 2021. In 2021, the average VC investment in cybersecurity companies was US$55.5 million per transaction; in 2023, it was US$29.1 million through the end of March. This analysis excludes M&A activity. The distribution of series types is relatively the same, so that does not account for the smaller deal sizes. The drop is predominately due to lower valuations.
The graph below is Aite-Novarica Group’s Analysis of 1,127 VC investments since 2019.
Aite-Novarica Group Analysis of 1,127 VC Investments
So What Does This Mean?
The data indicates that cybersecurity investment deal values have succumbed to lower valuations despite strong interest by the investment community in doing deals. In 2021, VC firms were willing to pay 17.7 times their trailing 12 months’ sales; today, the multiple has dropped to 7.3 times. Lower valuations will likely see more cybersecurity companies sit on the sidelines waiting for valuations to increase, and VC firms will increase their due diligence in valuations.
This data snapshot is a glimpse into my upcoming report that covers my deep dive into cybersecurity VC investments over the past five years. Follow my upcoming blog posts for the latest updates on this report that every cybersecurity entrepreneur will want to read.
