Cybersecurity Funding Shows Resilience In Q1

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Venture funding overall was still sluggish, but cybersecurity startups saw some love from investors in the first quarter of 2024.

To be sure, this is not the salad days of 2021 — cybersecurity funding was still down year to year — but the sector saw its best funding quarter in three quarters.

All told, cybersecurity startups raised nearly $2.7 billion in 154 deals in Q1, per Crunchbase data.

That dollar figure is the highest since Q1 last year, when similar startups raised just less than $2.9 billion in 228 deals. However, the Q1 2024 dollar figure represents a 69% increase from the previous quarter, when cyber startups raised just $1.6 billion in 148 deals.

The numbers seem to show quite a rebound for a sector that in the last quarter of 2023 saw its lowest amount of funding since Q3 2018, when cyber firms raised just $1.3 billion.

Big cyber deals rebound

One of the big differences between Q1 and the previous quarter was the comeback of big rounds in the cybersecurity realm — something that seems to be happening more often again in a lot of sectors.

While no round topped $140 million in Q4 2023, three big rounds were greater than that amount in Q1:

In fact, big rounds were somewhat the story of the quarter, which saw nine cybersecurity startup funding rounds of $100 million or more. That’s three times as many as there were in Q4 2023.

Not just AI

The easy thing to do is write off the jump in cyber funding solely to AI — after all, many cyber startups trumpet the use of the technology in their platform for automation or help provide guardrails for companies using it.

But a look at some of the firms that raised big in the quarter seems to tell a different story.

Two of the bigger raises in Q1 were Nozomi Networks locking up a $100 million Series E from investors including Mitsubishi Electric and Schneider Electric, and New York-based Claroty securing $100 million in strategic debt/credit financing led by Delta-v Capital.

The companies both offer industrial security — also called operational technology security — and IoT security platforms, a subsector of cybersecurity that had seen a dearth of funding in recent quarters.

Another big round went to New York-based Coro, a cybersecurity platform purpose-built for small and medium-sized enterprises. The company announced a $100 million Series D led by One Peak last month to serve what many believe is an underserved market.

That is not to say many of these companies don’t have an AI story to tell — especially to investors — but that is not the entirety of their businesses.

Better days ahead?

All of that said, this does not mean cybersecurity is headed back to the heights of 2021, when the sector raked in nearly $24 billion — an amount that seems ludicrous today.

It does mean VCs and strategics continue to see value in investing in the industry even as IT budgets are cut and competition continues to increase.

Already this month, data security startup Cyera raised a $300 million Series C led by Coatue at a $1.4 billion valuation, so the second quarter is off and running.

Most cybersecurity executives will proudly proclaim the resilience of their security offering to any malicious attack — it seems their startups may have a little of that virtue when it comes to securing funding in a tough market.

Methodology

Cybersecurity is defined by the industries of network security, cloud security and cybersecurity, according to Crunchbase data. Most announced rounds are represented in the database; however, there could be a small time lag for rounds reported late in the quarter.