Security Venture Funding Likely to Keep Up Brisk Pace in 2014

The last 12 months marked a banner year for security startups and venture firms, with more money expected in 2014.

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Venture investments in security firms took off in 2013, a trend that is expected to continue in the coming year, according to industry insiders.

For the 12 months ending in June 2013, investment firms gave more than $1.4 billion to security startups and companies in 239 deals, according to investment-tracking firm CB Insights. The activity has continued: On Dec. 2, Akamai announced it bought denial-of-service (DoS) attack protection firm Prolexic for $370 million in cash.

One reason the security industry continues to attract investments is that digital attackers have kept up the pressure on corporate defenses, Sam Glines, CEO of threat-intelligence firm Norse, told eWEEK.

"You can sort of measure when this trend is at the top by how well we are able to protect ourselves from the adversary," he said. "I don't think we would ever stop fighting a war when we could still invest in better defenses."

Driven by high-profile successes, venture capitalists are flocking to fund both startups and mature companies. Last January, for example, FireEye, a maker of advanced malware defenses, raised $50 million in a final round of funding before going public in August in an initial public offering totaling $175 million.

Fueled by a stellar first quarter of financing, total investments have jumped 29 percent year-over-year, according to CB Insights. Most investments have been seed or angel funding for startups, but the first quarter of the year saw 10 companies each receive more than $10 million in financing, according to the firm's analysis.

This month, the DoS defense market garnered the most attention, when Akamai bought Prolexic, a well-known distributed denial-of-service (DDoS) mitigation firm. The purchase had both venture capitalists and other DoS firms making noise over who might be next.

"All that private equity is talking about right now is how they have to be in the DDoS business," Jeffrey Lyon, CEO and founder of Black Lotus, a DDoS mitigation provider, said on Dec. 5. "There is a lot of hunger and not a lot of supply."

Another hot market is the mobile-security sector. Investments in companies such as mobile security-software maker Lookout and mobile-application security provider Mocana have more than doubled year-over-year, according to CB Insights.

Yet the security industry needs to improve in many areas, said Norse's Glines. Security firms need to deliver a better ROI to their customers and better serve small and midsize businesses, he said. In addition, the companies need to develop solutions that are more effective.

"This is a war, and we are losing badly," Norse's Glines said. "It is going to require some innovative technologies and solutions, but this war can be won."

Robert Lemos

Robert Lemos

Robert Lemos is an award-winning freelance journalist who has covered information security, cybercrime and technology's impact on society for almost two decades. A former research engineer, he's...