Why is cybersecurity venture funding so tepid despite the strong demand?

If you looked at venture capital investment trends in the cybersecurity market, you’d be excused for thinking that the sector was struggling.

Crunchbase data indicates that cybersecurity startups raised $1.9 billion in the third quarter, across 153 deals. The amount was better than the $1.7 billion startups in the sector raised in Q2 2023, but deal count declined from 181 deals.

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But Crunchbase goes on to note that with third-quarter cybersecurity venture funding down 30% compared to the year-ago period, investment in the category could fall to its lowest level since 2019. Other sources are also tracking a decline in cyber venture investment this year.

That’s not a huge surprise since venture capital investment has largely been in retreat in 2023 compared to the past several years, but given public cybersecurity companies’ performance these days, we’re a little bit puzzled at just how tepid venture investment in this space is.

It makes sense that fintech as a sector is suffering, since those companies’ growth rates have come down, and the startups that benefited from pandemic-driven tailwinds have since seen their valuations slashed.

PayPal’s revenue, for example, rose 8% in the third quarter, and the company’s price/sales multiple has collapsed in recent years (price/sales is the grown-up version of a startup revenue multiple). Observe:


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