Before Max Krohn, the OkCupid co-founder, played online matchmaker, he had a far-less-romantic interest in cryptography. But he couldn’t see a way to make a living at it.
“Security startups never really did so well,” says Mr. Krohn, who studied computer science at Harvard University and the Massachusetts Institute of Technology. “There was not an example of a runaway success.”
That is changing, following major data breaches, as corporate customers and venture capitalists show increased interest in cybersecurity. Mr. Krohn and another OkCupid co-founder have a new startup, Keybase, which aims to make encryption easier to use. Wednesday drew its first outside investment, a $10.8 million round led by venture-capital firm Andreessen Horowitz.
On Monday, Google Capital, the search giant’s growth-equity fund, made its first cybersecurity investment, leading a $100 million round in Crowdstrike, known for outing Chinese and Russian hackers. Allegis Capital this month said it closed on $100 million toward a fund focused on cybersecurity. Three years ago, private-equity fund Blackstone Group had no cybersecurity investments; now it has seven.
“It’s almost like, ‘Who hasn’t been hacked?’ ” said Venky Ganesan, a managing director at Menlo Ventures who led the firm’s investment in BitSight Technologies, which gives companies a credit-score-like rating for computer defenses. In 2011, Menlo directed about 5% of a $400 million fund toward security startups, Mr. Ganesan said, and its current fund has dedicated about 20% to the field.
In the 2015 first half, venture firms invested $1.2 billion in cybersecurity startups, according to researcher CB Insights. That is down slightly from $1.4 billion a year earlier but up sharply from $771 million in 2013’s first half.
The shift is particularly notable at Andreessen Horowitz, which used to view security companies as necessary for Internet safety but less lucrative than other technology niches.
One reason is that cybersecurity startups were often acquired prior to an initial public offering, says Scott Weiss, an Andreessen Horowitz partner. Mr. Weiss sold his own security startup, IronPort Systems Inc., toCisco Systems Inc. for $830 million in 2007.
Well-received offerings from companies including Palo Alto Networks Inc. in 2012 andFireEye Inc. in 2013 have altered that view. Partners at Andreessen Horowitz say they likely wouldn’t have invested in a company like Keybase even two years ago. Over the past 13 months, the firm also made an unusually large $142 million bet on Tanium Inc., which tries to make it easier for companies to find vulnerable and infected machines on their networks.
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