DC Discusses: RSA Conference 2023 trends & takeaways

CYBER INVESTMENT AND DEAL ACTIVITY

Capital raising at attractive valuations continues to be viable for top-quartile performers. Companies outside of the top-quartile are either patiently waiting (on the sidelines) if they have the runway or are finding a much more challenging fund-raising environment. Recently, we have seen a variety of potential outcomes ranging from frothy Wiz-type investments to the materially down round recently announced by Cybereason.[1] In February 2023, Wiz raised USD 300M at a valuation of USD 10.3B compared to its October 2021 raise of USD 250M at a USD 6B valuation – nearly doubling in value over 17 months.[2] This contrasts with the previously high-flying Boston-based cybersecurity "unicorn," Cybereason who took a deep valuation cut. In April 2023, Cybereason raised USD 100M in new funding from existing investor SoftBank, which represented an approximate 90% discount from their July 2021 valuation of USD 2.7B.[3]

Another key takeaway is that sponsors are hungry for quality deal flow. After several quarters of limited activity, there is much to suggest a desire to be active on closing deals as we enter the latter half of the year. There is currently, in our observation, a wide (expanding) pool of sponsors looking at the cybersecurity sector with newcomers primarily focused on opportunities in Cyber Services as their initial entry point. 

On the M&A front it is quiet, however our view is that sector consolidation will likely materialize in the imminent future. That said, it is taking longer to align the expectations of both buyers and sellers. We believe the current environment will naturally lend itself to competitors that come together to scale up, drive more profitability, and weather the storm together. One recent example of this is the all-stock acquisition of LookingGlass by ZeroFox, which traded at a significant discount to invested capital.[4]

AI is changing the cybersecurity landscape 

In the world of cybersecurity, AI unanimously wins the award for buzz word of the year. There is no technology discussion today complete without addressing the impact of generative AI as a formidable tool in cybersecurity. Generative AI has the potential to transform cybersecurity by creating new data based on patterns it has been trained on, predictive models, generating simulated environments, and analyzing large volumes of data.

At the RSA Conference, Google announced Cloud Security AI Workbench, a cybersecurity suite powered by a specialized "security" AI language model called Sec-PaLM.[5] In March, Microsoft launched Security Copilot, a new tool that aims to "summarize" and "make sense" of threat intelligence using generative AI models from OpenAI including GPT-4.[6] However, while it offers enormous potential, there is plenty of caution and thoughtful debate necessary on how to harness generative AI for cybersecurity to ensure it is only used for defensive purposes. 

Final thoughts & opportunity 

We are optimistic that there is an emerging wave of cybersecurity companies that started during COVID, built capital efficient models, and are creating disruptive solutions. Companies with 50-75%+ year over year growth with minimal burn are highly sought-after in the current market environment. Gone are the days of growth at all costs. Profitability (or at least a path to profitability) is back in fashion. 

The team at DC Advisory is available to meet and talk through what we are seeing in the Cyber and Risk market. 

To find out more, please contact Matt Fiore and Eric Wagner. 

For important information about this article, please see our insights and publications disclaimer. 

References

[1] Primack, Dan. "Cybereason cuts valuation by more than 90%, loses unicorn status." Axios, April 2023: Cybereason cuts valuation by more than 90%, loses unicorn status (axios.com)

[2] PitchBook Data, Inc., Company profiles, April 2023

[3] Primack, Dan. "Cybereason cuts valuation by more than 90%, loses unicorn status." Axios, April 2023: Cybereason cuts valuation by more than 90%, loses unicorn status (axios.com)

[4] Kovacs, Eduard. “ZeroFox to Acquire Threat Intelligence Firm LookingGlass for $26 Million.” Security Week, April 2023: ZeroFox to Acquire Threat Intelligence Firm LookingGlass for $26 Million - SecurityWeek

[5] Wiggers, Kyle. “Google brings generative AI to cybersecurity.” TechCrunch, April 2023: Google brings generative AI to cybersecurity | TechCrunch

[6] Wiggers, Kyle. “Google brings generative AI to cybersecurity.” TechCrunch, April 2023: Google brings generative AI to cybersecurity | TechCrunch

For important information about this article, please see our insights and publications disclaimer. 

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