‘There’s A Lot Of Noise’ — VCs Trying To Find Clarity In Cluttered Cyber AI Landscape

The annual RSA Conference concerning all things cyber barreled into San Francisco last week with a lot of startups, crowds, parties and all the other surrounding hoopla one would expect from a massive tech conference.

However, it seemed like what most of the folks who invest big-money in those same cybersecurity startups really wanted was some quiet from all the noise that surrounds AI.

“There’s a lot of noise out there,” said one investor. “It’s getting harder and harder to cut through much of it.”

The general consensus among VCs at the conference was that while they are listening to a lot of pitches from startups that use AI or help secure its development — such as data protection, identity and third-party risk — many are taking their time to invest.

“It’s not that we aren’t listening,” said another VC. “We just haven’t pulled the trigger yet. We haven’t seen one that really moved us.”

Some investors seem hesitant to enter a market they don’t fully understand the size of yet and are skeptical of startups that claim they have an AI story when in reality they actually may or may not.

That said, funding numbers for AI-related cybersecurity startups actually seems to have made a comeback this year after a slight pullback in Q4. In the first quarter of the year, investors poured $263 million into such startups, compared to only $103 million in Q4 of last year, per Crunchbase data.

The biggest deal of Q1 was a $60 million Series E raise by New York-based BigID.

Already in the second quarter, investors have agreed to $410 million in deals with startups.

So, while many are preaching patience, it seems others are writing checks.

Other news and notes from RSA:

The conference opened with news of cloud security startup Wiz locking up the biggest cybersecurity round of the year thus far — a $1 billion round at a $12 billion valuation. The round caught some by surprise, but the general feeling was the overall funding levels in cyber were healthy and sustainable. While some downrounds and flatrounds still persist, there has been a noticeable uptick in both investors’ interest and actual money spent this year (which we have covered).
One part of cybersecurity receiving interest are startups doing things around disinformation. Brands care about their reputation more than ever and a record 60-plus democratic countries are having national elections this year. “It’s on the top of everyone’s mind,” said an investor. Startups that can analyze texts, images and other data on multiple platforms such as the dark web and social media are something investors are looking at. Although, with some elections already behind us, one has to wonder if maybe this interest should have happened earlier.
The other thing on the top of investors minds is the slow but strengthening M&A market. Deal-making for cyber startups and startups in general has slowly picked up and many expect that to continue as there has been significantly more “chatter” about potential deals. “I think you’ll see Q4 be really busy,” said one investor. “It’s not hard to look back and see when some of these companies last raised, so they may be looking for an exit. Expect PE to be involved.” Private equity already has been active this year. Late last month, Thoma Bravo — which had a nice shindig on top of the San Francisco MOMA during RSA — bought Darktrace for a cool $5.32 billion in cash.