The first quarter marked the lowest VC funding for security in a decade, but there's a silver lining

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Today, DataTribe released a new report showing that cybersecurity venture capital activity dropped significantly in the first quarter of 2023, following the collapse of Silicon Valley Bank.

The report showed that while the cybersecurity industry experienced a less dramatic decline than the broader US venture capital ecosystem, cybersecurity deal activity in the first quarter was at an all-time low decade or so, with an average startup deal volume of 21 in Q1 2023, compared to 20 in Q1 2015.

Similarly, the volume of cybersecurity seed deals year-over-year decreased by 56%, from 48 deals to 21. However, the report also noted that the cybersecurity market in seed stage remained "relatively bright," with a median pre-money valuation of $15.5 million, just behind the all-time high of $15.8 million in Q4 2022.

While the overall decline in venture capital seed funding appears to be a blow to the cybersecurity industry, the report argues that there is an underlying silver lining: consolidation between security vendors. solutions.

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“The fact that fewer companies are receiving more funding at higher valuations is likely good for the industry, especially for the company's CISO, [which] is already overwhelmed by vendors trying to to sell the latest product," the report said.

In an email interview with VentureBeat, John Funge, chief executive of DataTribe, reaffirmed the report's findings and argued that "while the downturn is painful in some cases, we see it as a global thing. healthy".

Funge suggested that big cybersecurity companies will be able to take advantage of the market environment to make acquisitions and consolidate solutions while weaker companies struggle to survive.

“The medium to long-term benefit of this will be some streamlining of the highly fragmented technology stacks that businesses depend on,” Funge said.

One company that seems to exemplify this approach is cloud security provider Wiz, which, despite the economic downturn, successfully raised $300 million in Series D funding and a $10 billion pre-assessment for a solution that consolidates Cloud Security Posture Management (CSPM) and Cloud Native Application Protection Platform (CNAPP) capabilities into a single solution.

If Funge and DataTribe are correct that an economic downturn will encourage streamlining in the industry, then this will likely be a net benefit for CISOs. They will have the opportunity to reduce the complexity of their technology stack and reduce the total number of tools needed to secure their organization's environments.

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