Is The Cybersecurity Market Facing A Downturn?

For the last couple of years, cybersecurity has stood out as one of the strongest segments of the tech sector, but some new reports show the market may be cooling down in 2016.

Last year in particular was huge for cybersecurity; in December a forecast from Gartner said worldwide spending on cybersecurity in 2015 was expected to reach $75.4 billion, representing a 4.7 percent spike in growth compared to 2014. Many factors were reportedly driving this significant growth, including government and law enforcement initiatives, high-profile data breaches and increased legislation.

However, The Wall Street Journal reported Tuesday (March 1) that some changes may be in store for the cybersecurity landscape in the year ahead.

Private cybersecurity companies are putting plans to go public on hold as some cybersecurity stocks are being hit hard in the market. One exchange traded fund called HACK that trades like a stock was reportedly down more than 30 percent since June 2015.

“Two months ago, I would have said we were 18 months away from going public but now, with the market the way it is, it’s more like 36 months,” Matthew Prince, CEO of CloudFlare, told WSJ. The firm raised $110 million in 2014, 80 percent of which is still in the bank, and Prince said the company remains profitable.

Rather than seeing private companies prepare for IPOs, venture capitalists and investment bankers expect 2016 to be a year of mergers and acquisitions throughout the cybersecurity market, WSJ reported.

In 2015, there were 133 security M&A deals, an increase of 105 deals compared to 2014, but according to 451 Research’s tech outlook for 2016, security is expected to have the most M&A activity in 2016, exceeding mobile technology for the first time in six years.

“We’re confident that we’ll have options in respect to the future of the company – whether it be a possible IPO or being acquired by a strategic company,” Centrify CEO Tom Kemp told WSJ in an email.

Cybersecurity startups are also facing more challenges when it comes to fundraising in the current market, with VCs today becoming more discerning about where they choose to invest.

“What was once a top-line-growth-at-any-cost mentality has shifted to put a focus based on balancing of top line growth and ensuring a path to sustainable profitability,” said ForeScout CEO Mike DeCesare in an email to WSJ. “This is based on investors having made bets on companies at very high valuations that are now coming in with earnings below expectations,” he added.