Why Invest in Cyber Startups During a Global Crisis?

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During a global health crisis, the economic landscape can change overnight.  Leading corporations can see their prospects plummet, while less known companies may see their stock values rise.  Conflicting advice on how to protect public and economic health can paralyze decision-makers.  And, a lack of historical data forces many to move forward into unchartered waters.   This situation is especially true for cyber startups that have little or no track record during a time of uncertainty.

Should the market run from tech or cyber startups, as the New York Times suggests?  Should investors put all decisions on hold?  That depends on the tech startup.  Cybersecurity firms are likely to experience a period of significant growth as the current health crisis changes the world in unprecedented ways.  A shortage of qualified cybersecurity personnel and solutions combined with an increase in cybercrime presents an unparalleled opportunity for growth.

Pre-Crisis Landscape

As businesses entered 2020, 68% of business leaders believed their cybersecurity risk was increasing.  Given that a hacker attacks every 39 seconds, business leaders are not wrong.   Three familiar statistics tell the story:

  • The global cost of cybercrime will reach $6 trillion by 2021.
  • Global spending on cybersecurity from 2017 to 2021 will reach a cumulative total of $1 trillion.
  • About 3.5 million cybersecurity jobs will go unfilled by 2021.

Not only are the number of attacks increasing, but so is the level of sophistication.  According to an IBM study, the average time to identify a breach is seven months, and its lifecycle lasts almost 11.  On average, it takes a business nearly one year until a breach is contained.  That does not address the post-containment costs related to penalties, public relations, or lost business.

Before the health crisis, there was a growing demand for cybersecurity solutions.  Whether it was improved security software or more security services, businesses were looking for ways to protect their networks from attack.   The pandemic has only increased demand.

Crisis Landscape for Cyber Startups

The latest report from the FBI indicates that the number of reported cybercrimes has grown from 1,000 per day to almost 4,000.  Not all the crimes are COVID related, but a significant percentage are.   As the Deputy Assistant Director commented,

There was this brief shining moment when we hoped that, you know, ‘gosh cyber criminals are human beings too,’ and maybe they would think that targeting or taking advantage of this pandemic for personal profit might be beyond the pale. Sadly that has not been the case.”

No one is off-limits.

Healthcare

Healthcare facilities are at their most vulnerable.  In the midst of a pandemic, few providers are worried about malware when they accidentally click on the wrong link.  Cybercriminals are banking on that.  The World Health Organization has experienced an increase in the number of attempted attacks since March.  Before the pandemic, cybercriminals were holding healthcare facilities hostage, such as a hospital in Alabama that had to turn away patients because their admissions system was down.  They ultimately paid the ransom to get the hospital operating.  Imagine the impact during a coronavirus spike.

Individuals

DomainTools uncovered a website that tricks people into downloading a coronavirus-tracking app. The application contains ransomware that hijacks the device.  The hackers demand a $100 bitcoin payment before they will release the device.  In the United States, websites are popping us with fraudulent promises to help with filing for unemployment or receiving a stimulus check.

Remote Workers

With businesses changing to a remote work environment, the opportunity for cyberattacks has increased.  Attacks have included ransomware, business email compromise, and compromised credentials.  Most organizations are ill-prepared for the entire workforce to work remotely.  They don’t have policies in place or cyber solutions that can secure a remote access point.  For many organizations, the move has opened their organizations to a higher cyber risk or has overwhelmed their IT departments trying to deploy solutions to strengthen the network.

Email hacking man, cyber startups concern

COVID-19 Research

More recently, the United States has accused China of attempting to hack into its vaccine research.  Although no evidence was provided, and no other government-backed hacking groups were identified, some security specialists believe that China is not the only country that may be attempting cyber espionage.  Other countries such as Iran and Russia have been accused of espionage activities against the United States in the past.

What is apparent during this pandemic is the ongoing need for cybersecurity firms that can help mitigate the risk to businesses, governments, and the public.

Innovation Landscape

Aside from simply providing more resources to the business communities, cyber startups are focused on innovative solutions that address specific security needs.

  • Creating a shared network for medical facilities, enabling them to better protect against the growing number of attacks.
  • Focusing on bot management for web and mobile applications to protect personal information at both the server- and client-side.
  • Helping develop location and contact tracing solutions throughout the world.
  • Monitoring devices outside the firewall, at the edge, or on the IoT to mitigate the risk at access points.

Of course, machine learning and artificial intelligence are being leveraged to help identify and defend against possible phishing and social engineering attacks.   Analytics are also being developed to help businesses understand their cybersecurity risks.  Cybers startups are finding innovative solutions to protect against the rising cyber incidents as a result of the pandemic.

Post-Crisis Landscape

No one has a crystal ball, but cybersecurity startups appear to have an edge during the world’s move to online interactions.  Individuals within the security sector believe that the current situation will only highlight the skills shortage.  Firms will realize they have insufficient resources to support and secure a remote workforce.

At the same time, the economic downturn will place pressure on companies as they try to balance financial viability against cybersecurity risks.  Smaller companies or those with limited budgets may opt to forego improving their cybersecurity, but for the most part, organizations will continue to demand cybersecurity services.

Cyber startups can help fill shortages.  Many cyber startups offer unique solutions that address a specific niche within the security market.  For example, some cyber startups target the dark web, while others incorporate machine learning into their security solutions.  Others have created an agile environment that allows for faster times to market with new products and services.  Their responsiveness can help them compete against more established solutions that may not be as agile.

Most business analysts agree that a remote workforce is here to stay.  Not every company will embrace the idea, but for many, it is a short-term solution that will become a long-term mode of operation.  That means an ongoing need for security solutions to protect the employee and the employer.  It’s safe to say that hackers are not going away.  Companies will need solutions to protect and defend against an increasingly sophisticated and organized criminal element.

Investment Landscape

Given the current economic landscape, should you invest in a cybersecurity startup?  The simple answer is yes, but look for companies that can deliver the following:

  • Scale.  Businesses need a business model that can allow them to scale without loss of productivity or quality of service.   This capability needs to be demonstrated through its development methodology as well as its delivery model.
  • Agile.  Technology firms need to be agile in their research and development methods to be able to deliver new solutions quickly.  Flexibility in terms of product direction and delivery is necessary in an uncertain world.
  • Business Plan.  A solid plan should have financial reporting, astute marketing strategies, and robust contingency plans.
  • Delivery Model.  Technology and cyber startups need a delivery model that can adapt to the current landscape as well as an uncertain future.

With a solid business plan, cyber startups can give investors peace-of-mind during an unknown economic future.  A well-thought-out delivery model that can scale makes investing even more attractive.  A lean development style helps solidify a company’s ability to adapt to a changing landscape.

The pre-crisis landscape was poised for growth.  The demand for better solutions and services was growing at a rate that exceeded the supply.  After several months into the pandemic, cybersecurity needs have grown.  Although businesses are faced with budget cuts and difficult financial decisions, ignoring the heightened security threats as a result of COVID-19 only jeopardizes a company’s survival.

Cybersecurity startups with innovative solutions that can address immediate concerns will be well-positioned to continue to provide security products and services in the post-crisis landscape no matter how it looks.  Option3Ventures offers a venture capital fund that targets underserved and underfunded investment opportunities in the cybersecurity space.   If you’re looking for an investment or investment dollars, let us explore your options together.

Sources:

https://sifted.eu/articles/cybersecurity-coronavirus-startups/

https://www.zdnet.com/article/fbi-says-cybercrime-reports-quadrupled-during-covid-19-pandemic/

https://www.gartner.com/en/newsroom/press-releases/2018-08-15-gartner-forecasts-worldwide-information-security-spending-to-exceed-124-billion-in-2019

https://eng.umd.edu/news/story/study-hackers-attack-every-39-seconds

https://www.ibm.com/security/data-breach

https://apnews.com/0c6469337fd24ae093633bce900a7843

https://www.reuters.com/article/us-health-coronavirus-who-hack-exclusive/exclusive-elite-hackers-target-who-as-coronavirus-cyberattacks-spike-idUSKBN21A3BN

https://www.automationworld.com/cybersecurity/article/21126941/the-importance-of-cybersecurity-during-a-crisis

https://www.esecurityplanet.com/network-security/top-cyber-security-startups.html

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