US, 24th September 2020, ZEXPRWIRE, Imagine if Covid-19 were a systems and networks virus…how would we protect our economies and capitalize on the trend?
As Palantir filed for IPO (while also settling a score with Silicon Valley), news on the cybersecurity front has been grim since the start of the pandemic.
One of the unintended consequences of COVID-19 (and subsequently of the entire economy moving online) was the exponential increase in points of vulnerability both on the client-side and employee-side of cyber security. In addition, the uncertain and fearful global environment became fertile ground for fraudsters. Accordingly, the spike in cyber security threats related to COVID-19–and specifically the influx of associated malware and phishing scams–was fast, furious, and global. More specifically, attacks against the financial sector increased 238% globally from the beginning of February to the end of April.
In 2018, the IMF estimated that cybercrime was costing the world $100 billion to $350 billion annually (the equivalent of 10 to 30 percent of banks’ net global income) and was potentially threatening financial stability. So what are the trends we can anticipate? Following are several areas where a lot of activity is taking place, hence generating opportunity to capitalize on the disruption.
Cybersecurity companies will consolidate, likely increasing valuations.
Notwithstanding Palantir’s staggering $600M losses in 2019, cybersecurity companies have seen great results in terms of top/bottom lines and valuation. Private and public companies in the space were already trading at very healthy multiples; a trend that will likely continue. We will see more M&A as the industry matures and moves away from point solutions towards a platform approach. We are also seeing a race to consolidate and capture market share at every stage (hence a jump in capital being raised). KnowBe4, a KKR-backed cybersecurity company that raised $300M last year is readying its IPO estimated at +$2Bn and ReliaQuest just raised +$300m in growth financing, also led by KKR. Early-stage ventures like Plurilock are turning to public markets to enable their acquisition strategy of complementary players to make the transition from point to platform solution. A player in the Identity & Access Management space (with a former NSA director on its Board and clients such as the US Department of Homeland Security and the US Army), Plurilock received conditional approval to be listed on the TSX-V this August.
Large players such as Canadian giants Absolute Software and Blackberry and US-based CarbonBlack, CrowdStrike, CyberArk, and Fortinet should explore the option of launching an industry utility/COE/Institute that caters to T1 and T2/T3 banks. A model in the same vein as the Canadian superclusters would be beneficial across the board for cybersecurity businesses, the financial services industry, end clients, regulators, national governments, and ultimately society at large.
Allocating capital to cybersecurity companies (that might become M&A targets or platforms), as well as the companies that enable them (in spaces such as cloud computing and AI) should be on most investors’ radars, even for investors focusing on verticals other than Financial services, as the trend is ubiquitous. Cyber firms transitioning from point solutions to platforms should be high on the list for long term holdings; firms with a deep expertise and niche solutions will be of interest as potential acquisition targets with shorter-term horizons.
A challenge investors face, similar to banks and Fintechs, is a lack of experience and skill set when it comes to cybersecurity. We can expect VC/PE funds specializing in cybersecurity, such as Evolution Equity Partners, to see an influx of capital. Such strategies will not be easy to replicate, considering the competition-limiting shortage of deep expertise in the space. You can then expect funds with a skill set and track record in the cybersecurity industry to raise larger funds, write bigger checks, and likely move the maturity curve upward. We will probably also see more ETFs and mutual funds arise in the space.
To get exposure to the potentially outsized returns in the cybersecurity space, allocating capital to funds with deep expertise and a good track record is a great way in. For those investors who also want to build more direct exposure to the cybersecurity space, they will be able to do so via co-investment rights following investments in private VC/PE funds.
Overall, Israel, a cybersecurity powerhouse with an unmatched talent pool in the space, will greatly benefit from these trends.
About Peggy Van de Plassche
Peggy is a Senior Operating Advisor to PE/VC funds, Fintechs, asset managers, and banks. She focuses on growth and transformation via strategic partnerships, sales process optimization, products & geographies expansion, product roadmap validation, and client procurement process navigation.
Peggy has spent close to 20 years in the IT and financial services industries as an advisor, executive, investor, entrepreneur, and board member in leading financial institutions, as well as software and IT services companies such as CGI, CIBC, FrontFundr, Invest in Canada, and Zoom.ai.
Her client base includes Fortune 500 companies and leading organizations such as BMO, HOOPP PE, Impak Finance, OMERS VC, Portag3 VC, and Wondeur AI.
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Linkedin profile: https://www.linkedin.com/in/peggy-van-de-plassche/
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No JOURNAL RECITAL journalist was involved in the writing and production of this article.