Cybersecurity Startups Struggle

While there is certainly no shortage of cyberattacks, U.S. cybersecurity startups are struggling to thrive against more advanced hackers and larger companies that are releasing similar technology.

“I have never seen such a fast-growing market with so many companies on the losing side,” said David Cowan, a partner at Bessemer Venture Partners, as reported by Reuters.

Momentum Cyber, an advisory firm focused on mergers and acquisitions in the cyber industry, currently tracks 2,500 security companies, and estimates that 300 cybersecurity startups launch every year.

But only a small segment of those startups is seeing any success, leaving the majority with little chance of securing a good IPO price or being attractive enough for an acquisition.

“The pipe dream days of selling companies at a rich price equivalent to 10 times their revenue are gone,” said Tom Kellermann, chief executive of venture capital firm Strategic Cyber Ventures.

ForeScout Technologies, which provides software to companies that specializing in securing employee devices, was the only cybersecurity company in the country to go public last year—compared to three cybersecurity IPOs in 2016 and four in 2015. ForeScout raised $116 million in an IPO in October, which placed an $800 million value on the company.

But some larger startups have decided to delay their IPOs. Carbon Black, which was founded by former U.S. government cybersecurity experts in 2002, filed confidentially for an IPO in 2016, while also looking into a sale to other companies, including IBM. Carbon Black never moved forward with the IPO, but a source said it is now aiming to go public sometime this year.

And another startup, Zscaler, which focuses on cloud security, enlisted investment banks to help them go public last year, but ultimately, they postponed the offering until at least March in order to spend time on revenue growth initiatives.

“Some have compared some cybersecurity companies to cockroaches,” said Dave DeWalt, the former CEO of cybersecurity company FireEye. “They can’t die, but they aren’t smoking hot, either.”