Data Breaches Make Cybersecurity An Investor Darling

The rise of data breaches is becoming more widespread, hitting companies all over the globe working in an array of industries, and leaving devastating results in their wake.

But venture capitalists are taking notice.

According to The Wall Street Journal, researcher CB Insights found that the first half of 2015 saw investors putting $1.2 billion into cybersecurity startups, which is a drastic increase from 2013’s first half, when $771 million was invested in the cybersecurity-related companies.

The number isn’t too surprising considering the stakes are high when it comes to data breaches.

According to a report issued earlier this year by security research firm Ponemon Institute and authentication tech provider Duo Security, recovery from a data breach takes an average of 45 days at a cost of $35,414 per day, with the expense split among direct labor (26 percent), cash outlay (22 percent), productivity loss (21 percent), overhead (15 percent) and indirect labor (14 percent).

As if the outlook on cybercrime wasn’t bad enough, Juniper Research estimates the average data breach cost in 2020 will top $150 million.

This may explain why venture capitalists and corporate customers are showing such an increased interest in cybersecurity.

“Cyberthreats hit an all-time high in 2014, in terms of not only the number of breaches but their impact on all aspects of business. Who would have thought that we would see a time when a simple movie would spur attacks that forced an entire industry to publicly address the way it thinks about privacy, piracy, and geopolitical implications of the product it produces,” Steve Piper, CEO of CyberEdge Group, said earlier this year.

“For the first time in our research, a majority of participants predict their networks will become compromised in 2015. These are indeed dangerous times, but there is still cause for optimism as organizations take active steps to prepare for the unexpected. Welcome to the new reality,” Piper added.

While cyberattacks remain on the rise, industry confidence in being able to combat the threats has taken a hit.

It’s almost like, ‘Who hasn’t been hacked?’” Venky Ganesan, a managing director at Menlo Ventures, told WSJ.

Back in 2011, Menlo Ventures invested roughly 5 percent of a $400 million fund toward security-focused startups and its current fund had approximately 20 percent dedicated to the field, Ganesan explained.

Just weeks ago, Google Capital led a $100 million funding round for cybersecurity company CrowdStrike, which specializes in offering a Software-as-a Service (SaaS) based endpoint protection platform, allowing organizations to detect, prevent and respond to attacks at any stage.

The drastic movement toward cybersecurity investment mimics a similar shift in attitudes surrounding online security, which was seen as more of a niche years ago.

But with massive data breaches making their way to the U.S. federal computer networks, it has become a problem stakeholders can no longer avoid.

“Everybody acknowledges there is a problem, and we don’t have a lot of explaining to do,” Bob Ackerman, founding and managing director of Allegis Capital, said in reference to the $100 million fund the company recently built up to invest in cybersecurity.

“[Cybersecurity] stands in front of the information technology infrastructure that underlies the entire global economy,” Ackerman added.

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