Funding for cybersecurity start-ups dropped by a third in 2022 — data

KUALA LUMPUR (Jan 10): Funding for cybersecurity start-ups dropped by a third in 2022, according to Crunchbase, which tracks trends, investments and news of global companies from start-ups to the Fortune 1000.

In a report on Monday (Jan 9), the firm said venture capital in cybersecurity hit a record high in 2021 — like it did in many industries — but last year could not come close to matching those peak times.

It said while 2021 saw a record US$22.8 billion (RM99.83 billion) roll into start-ups in the sector, that number fell to US$15.3 billion last year. 

However, it said the 2022 venture total still represented a 68% increase from 2020 — which until last year was the high-water mark for venture funding in the industry.

Crunchbase said that the downside, however, was that investment dollars trended downward as the past year went on — something that may not bode well for start-ups in 2023.

It said the fourth quarter saw only US$2.4 billion go to cyber start-ups, the lowest amount of venture investment in the sector since the third quarter of  2020 — which saw US$1.6 billion invested.

Big dip in big rounds

Crunchbase said that one reason for the dip in funding was undoubtedly due to far fewer huge growth rounds being raised overall.

It said a look at the numbers shows while 18 rounds of more than a quarter-billion dollars were raised in 2021, last year saw only seven such rounds.

Not surprising

The firm said the drop in such large rounds was not surprising, as large growth rounds were the first victims of venture capitalists pulling back on investing.

However, it said while early-stage rounds stayed strong in many sectors, cyber did see a substantial decline in deal flow, dropping from 862 announced rounds in 2021 to only 730 last year.

While 2021 may be an outlier, nearly 830 funding deals were announced in 2020, it said.

Crunchbase said the drop in deal flow and the declining trend of investments seem to signal a potentially tough year for cyber start-ups. Even merger and acquisition dealmaking was down nearly a third when it came to venture capital-backed start-ups being bought.