Spurt In Venture Capital Funding To Cyber Security Firms

May 13, 2013

Venture capital investments in firms offering cloud security and data protection is seeing a lot of activity in recent months.  Firms supplying technologies to protect against data theft and cyber attacks are seeing strong traction in their business and venture capital firms are bankrolling such data security companies to fund product development and expansion. According to David Canellos, CEO of cyber security firm PerspecSys which recently attracted venture funding, the large volume of data stored in cloud computing systems together with the increase in attacks on corporate computer systems has resulted in strong demand for companies offering data protection services.

Recent VC Investments In Data Security Firms

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One of the hot venture capital investments in data security firms in recent months was FireEye, which offers solutions to detect and block new breed of cyber attacks such as advanced malware. Venture capital firms Sequoia Capital, Norwest Venture Partners participated in the company’s recent $50M round to fund plans for international expansion and product development.

In a similar deal, Venture capital firm Paladin Capital led a $23 million round in March in Endgame Systems, which provides real time command and control capabilities to enhance computer security. Started in 2008, Endgame Systems counts as its backers venture capital firms Bessemer Venture Partners, Columbia Capital and Kleiner Perkins Caulfield & Byers. This was the company’s second venture capital round bringing its total venture funding to $52 million.

Other recent noteworthy venture capital investments in internet security firms include startup Cylance, which attracted $15 million from Khosla Ventures and Fairhaven Capital in February, and PerspecSys which received $12 million in venture capital from Paladin Capital Group and Ascent Venture Partners.

The strong interest of venture capital firms in cloud security firms is due to the expectation that companies offering data security solutions are likely to experience strong growth in the coming years. In a survey conducted in January 2013, research firm Gartner found that companies are planning to increase security spending for cloud based security service offerings. Gartner estimates cloud based security services market to reach $4.2 billion by 2016.

Venture Capital Confidence Continues To Improve

Despite data showing that venture capital investments in the first quarter reached the lowest level in over two years, a quarterly survey of venture capitalist confidence by University of San Francisco professor Mark Cannice found that confidence among venture capital managers for the near term rose for the third consecutive quarter. Professor Cannice attributes the increased confidence to the portfolio companies of venture capital firms doing well and the expectation among venture capital managers that improvement in the broader market will eventually result in attractive exit opportunities for the firms.

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