The cyber security landscape has changed dramatically in recent years, with attacks becoming more frequent and more sophisticated in nature, as cyber criminals attempt to make use of the latest technology to steal money, gain access to sensitive data and disrupt the operations of major worldwide companies and governmental organisations.
With the rise in the number of attacks and their prominent position in the public eye, as well as the reputational and financial damage they can have on organisations in every sector of industry, cyber security is becoming big business.
This has been indicated by data from research firm PrivCo that showed a 60 per cent increase in early-stage funding for cyber security start-ups in 2013, rising to $244 million worldwide.
The Financial Times reported that the number of deals also saw a rapid increase, up more than 100 per cent year-on-year to more than one every week.
Some of the largest and most high-profile deals in recent times included the acquisition of Sourcefire by Cisco for $2.7 billion last year and Dell buying SonicWall for around $1.2 billion in 2012.
Much of the increased investment in recent months is down to a number of high profile data breaches in the second half of 2013. US retailer Target suffered a data breach which affected tens of millions of people in the nation, while an insider at the Korea Credit Bureau made off with 20 million cardholders’ details earlier this year.
Research firm CB Insights has indicated that in the past year, venture capital firms invested a record-high $1.4 billion in 239 cybersecurity companies creating everything from mobile-app security platforms to online-authentication infrastructures.
It revealed that almost 80 cybersecurity start-ups have exited, either through acquisition or IPO, with an average tenfold return on investment, highlighting FireEye's IPO as one such situation.
Its initial public offering of 15.2 million shares was priced at $20 per share in September 2013, raising about $304 million, but just five months later, FireEye has a market cap of almost $10 billion.
Ted Schlein, a partner at Kleiner Perkins Caufield Byers, the Silicon Valley venture capital firm, told the FT that there has been a “huge mental shift” in companies and they are increasingly willing to spend on cyber security.
He noted that recent valuations of cyber security start-up firms have become pretty high, but with the rising investment in security measures by companies of all sizes, all over the world, they provide leading revenue opportunities for investors.
Mr Schlein says he expects most of the new start ups to eventually be snapped up by the larger technology companies.
Within the cyber security sector, there are a number of hot prospects that are seeing more investment than others. Areas such as secure communications, BYOD security, the detection and mediation of zero-day threats and the detection and defeat of BotNet attacks, are all a major focus for investors at the moment.
Overall, the importance of cyber security to organisations all over the world and the increasing number of start-up firms operating in this area, more investors will be looking to jump on the cyber security bandwagon this year, which means valuations will continue to increase as competition grows.
By Tony Aynsley