Top 5 Cybersecurity Startups
Ranking & Review by Cybersecurity Expert
Angel Kings predicts that the cybersecurity market is going to be worth over $150 billion by 2020, representing a compound annual growth rate of over 10 percent from 2014 through 2019. As web, mobile, and network processes evolve, the cybersecurity market isn't just growing in size—it's also growing in scope.
Organizations are offering more data and services via nontraditional methods such as mobile, increasing risk points for cyber attacks. The amount of data being processed across the globe grows exponentially on a daily basis, and almost no process in sectors such as healthcare, finance, or insurance is conducted without touching the web.
What is Cybersecurity?
Cyber security/Cybersecurity (one word) refers to the software, hardware, and services that protect networks, computers, and data. Protection may be any destruction, access, or change that is unauthorized by the user or is unintentional. The bulk of what we refer to as cybersecurity concentrates on protecting against cyber threats–hackers, malware, and criminals that would vandalize or appropriate data or networks for illicit use. Other cybersecurity products might protect against outages or disaster scenarios.
Why is cybersecurity a top investment pick?
As of early 2015, AngelList contained 130 cybersecurity startups with an average valuation of $4.7 million. Such startups are attractive to investors for a variety of reasons, not the least of which is a general high potential for IPO and acquisition events for any small company in the industry. A startup with a good idea draws attention from bigger companies, and experts believe the cybersecurity market will continue to be dominated by big players such as Dell.
Another reason cybersecurity startups make good investments is that the best companies tend to scale up quickly. Tech firms in general are experts at building on existing technology; they rarely start from scratch, letting then bring viable products to market in short time spans. Because those products tend to meet an urgent psychological and actual need for users, an apt marketing campaign or integration is often all it takes for good products to find sales success.
Investors in cybersecurity can also be assured of a continued and growing need for these types of products. Startups that show an understanding of the market are likely to be able to navigate future needs to tweak or develop products for continued viability. Cyber security startups tend to be launched by individuals with high–level technology degrees, backgrounds with large tech companies or security agencies, and, often, some background in startup management. As these companies go public and acquisition stages early on, it leaves founders available to launch new products–and provides angel investors with experienced people to invest in.
The Top Startups in Cybersecurity
In 2013, venture capital firms invested in 239 different cybersecurity startups for a total investment of almost $1.4 billion. With an average valuation of about $4.4 million, cybersecurity startups make a good show in the marketplace despite the relative immaturity of the industry as a whole.
One of the reasons cybersecurity startups are seeing such success is that the industry is currently ripe for disruption. The need among organizations in every sector—and of every size—is critical, and existing security solutions are not meeting all of those needs. The evidence that new solutions are needed is in the growing number of breaches and the expanding scope of those attacks.
Because cyber criminals are evolving quickly, it takes the mobility and agile nature of startups to keep up. Most startups in the industry begin with a single idea, service, and product, working to bring that product up to par with market requirements. Because of this, startups are able to evolve within their smaller scope faster than large organizations—making the startup the organization that is most likely to plug the gaps in current cybersecurity capabilities.
#1 Authy (Acquired by Twilio)
Authy's main product was a two-factor authentication that could be used by any website owner or mobile user. The authentication provided protection on applications such as Dropbox, Outlook, Evernote, and Facebook and helped keep the user from falling prey to phishing schemes and other similar attacks. Authy customers could integrate the authentication into their own applications, and Authy also offered protection in a payment environment. In addition to providing security resources, Authy helped customers remain complaint with privacy requirements such as HIPAA or PCI. Authy services clients such as Twitch and Weebly.
Authy, which is an Angel Kings portfolio company, created security products that were successful enough on the market to attract M&A attention for the company. Twilio purchased Authy in 2015 in a cash and stock deal. We also expect Twilio to go public by 2016.
Another company utilized by top companies like Uber, Zenefits, Instacart, and DoorDash, Checkr provides the engineering API for background checks on all part-time, full-time and independent contractors. Checkr has a simple API for processing thousands of applicants' backgrounds each day. Checkr provides automated reports and security checks for candidates; by doing this, companies can feel more comfortable sending these new hires out for deliveries and into the homes of their customers.
We expect Checkr to become a billion dollar cybersecurity startup within the next year. We're hoping to see this company IPO in the future and believe it could hit a 3 to 4 billion dollar valuation like more mature cybersecurity companies and background checks systems have become.
#3 Lookout Mobile
Lookout has been through eight investment rounds, securing $282 million from investors such as Accel Partners, Morgan Stanley, and Andreessen Horowitz. Lookout's flagship product is predictive software that helps organizations and individuals stop mobile-based cyber attacks before large-scale harm occurs. The product includes analysis of app behavior, code and known cyber attacks to notify users of potential threats. The app also includes services to protect against physical theft by converting phone applications and features to defense resources.
In addition to security-specific services, Lookout's product enhances data storage and backup on mobile devices, vets downloaded applications to ensure they are compliant with security requirements, and helps users locate or replace lost or stolen phones and mobile devices. The service automatically backs up contacts, call histories, photographs, and other data that is housed on mobile devices. Lookout's client list includes names such as AT&T, Qualcomm, and T-Mobile.
Angel Kings expects Lookout to be a top acquisition target by publicly listed companies like Oracle, Cisco, IBM, HP, Google or Apple.
BlockScore attempts to solve a specific problem in the cybersecurity niche. The company, which provides identity verification applications for online transactions, provides services to companies such as CoinSafe, Vaurum, and snapCard. Through two rounds of investing, BlockScore was able to raise around $2 million in capital.
· Identification and verification of customers and the information they provide to reduce the use of websites and applications by fraudulent entities or for fraudulent purposes. One real-world application of this service is to stop fraudulent credit card transactions.
· Knowledge-based authentication to protect applications and customers better than a password alone can.
· Proactive compliance by scanning watch lists and other government documents during the verification process.
· Mass fraud detection, which is bolstered by data-driven analysis of networks.
#5 Sift Science
Used by companies such as Uber, Airbnb, and Match.com, Sift Science's products use machine learning to fight computer fraud. Logic and intelligent programming let the startup's programs teach computers and networks to identify patterns and processes that might indicate fraudulent activity. This allows for immediate threat identification and fraud detection.
The result of Sift Science's product is a reduction in chargebacks and financial exposure for Sift Science clients. According to Sift Science, the logic and analytical approach catches threats that rules-based engines would miss. Sift Science also provides a console, or dashboard, that lets users track behaviors and information in a single location, making it easier to identify suspicious activity while monitoring user and account relationships in real-time. Because Sift Science's product is adaptable, each piece of data that is processed by the system results in better performance and an increased ability to accurately identify system threats.
Sift Science was able to raise $23.6 million in funding over three investment rounds including funding from Y-Combinator, Spark Capital and First Round.
We expect Sift Science to be an acquisition target by Google, IBM, Oracle, Amazon or Cisco. Sift Science could also be acquired by newly public Shopify or an e-commerce platform that depends so heavily on protecting itself from fraud.
Leading Cybersecurity expert's speech on fastest-growing cybersecurity technology startups:
"The five hottest startups in cybersecurity in 2015 and probably 2016 and beyond are: Lookout, BlockScore, Sift Science, Synack Labs, and the last one is Bugcrowd. Right. They have all got quirky names, but they have a great purpose.
Each of these five startups are doing a great job in the cybersecurity space, both through hardware as well as software protections for American consumers.... look at these startups because we'd like to invest in companies like this, in particular in cybersecurity."