The Rocky Road for Cybersecurity Startups


rockyroad

How should a new cybersecurity company navigate the maze of getting investors and standing out in a crowded field? 

New technology and security companies seemingly pop up every other week. Some seek to become the next Facebook Inc. or Microsoft Corp. and others aim to be bought out by larger companies before turning to their next venture. 

The need for cybersecurity solutions doesn’t seem to be slowing down. Witness the WannaCry ransomware strike that hit over 300,000 computers in 150 countries, the Mirai botnet attack that denied surfers access to thousands of websites around the world, or massive data breaches such as the ones that compromised some 1.5 billion Yahoo! Inc. user accounts. 
Despite a growing market need, however, not all cybersecurity offerings are the same. During pitch meetings, where companies seek funding for their cybersecurity solutions from venture capitalists or investors, businesses need to stand out from the pack, Rich Baich, chief information security officer at Wells Fargo & Co., said at the recent Cyber Investing Summit at the New York Stock Exchange. Using security buzzwords, such as artificial intelligence and end-to-end encryption, will only get a startup so far, because “there are three to four vendors” looking for investment “that said the same thing,” he said. Successful companies have to come in “to solve a problem,” Baich said. 

Richard Seewald, founding and managing partner at Evolution Equity Partners in New York, said it is important for cybersecurity startups to seek out investors “with a deep knowledge in this sector.” Startups that have an early investor or mentor with “cyber DNA” to guide through the various rounds of funding will have much more success in the long run, he said.

Not all startups will receive funding early on, but this doesn’t mean the company or services offered aren’t worth developing further. On some occasions, investors will circle back and “gobble up” the startup “down the line,” Baich said. At least in the beginning, startups need to “go shop where they have an opportunity,” he said. 

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