Young Cyber Companies Face Uncertain Economy

“Companies that ramped up too fast last year are the ones who are laying off,” said Ravi Srinivasan, chief executive of cybersecurity company Votiro, which was started in 2012 and hasn’t laid off staff. 

Although cybersecurity departments at companies across sectors have largely been spared the mass layoffs experienced by other areas, some companies that provide cybersecurity products or services have cut head counts in the face of economic uncertainty.

Thousands of staff have been laid off from security providers in recent months, often in sales and marketing roles, but also in areas such as engineering. Recently, cybersecurity vendor Bishop Fox laid off 13% of its workforce after the annual RSA Conference held in late April.

“We proactively made these changes in response to the global economic situation and opportunities we identified to make our business more efficient. While demand for our solutions remains solid and our business is stable, we can’t ignore the market uncertainty and investment trends in this very different global economy,” said Chief Executive Vinnie Liu.

Venture-capital funds also are more selective now in where they deploy their capital, said John Masserini, a senior research analyst at consulting company TAG Cyber.

“They’re tapping the brakes,” he said. 

VC funding for cybersecurity companies was $2.9 billion in the first quarter of 2023, compared with $5.3 billion during the same period last year, according to cyber recruiting company Pinpoint Search Group.

Chief information security officers, under pressure to justify their own budgets, are changing purchasing strategies. Younger companies without established relationships with security chiefs, or track records with potential customers, may find it harder to win business in the future as a result. John Visneski, CISO at

Amazon’s

MGM Studios, said he is now considering how vendor products will work with technology he has already deployed, rather than simply buying the most capable product for each area and working out integration later. 

Mr. Visneski said that as a result, he is probably “less likely” to take a chance on an early-stage vendor today than he may have been a few years ago.

Benjamin Fabre, chief executive of fraud-prevention company DataDome, said he has faced challenges to contract renewals from customers’ chief financial officers, who now review budgets with more intense scrutiny.

Young cyber companies are still able to access funding, but years of outsize rounds and focus on growth at all costs are starting to be corrected, analysts say. Some companies are finding that to raise the funds they need, they must accept lower valuations than they might have in the past. 

Cybereason, a Boston-based security company, raised $100 million in Series G financing in early April, led by

SoftBank.

Regulatory filings show that shares were sold at a discount of more than 90% to Cybereason’s previous round in mid-2021, in which it was valued at approximately $3.1 billion. 

The company’s chief executive, Lior Div, was replaced by SoftBank executive Eric Gan, with Mr. Div taking on an advisory role. Cybereason didn’t respond to a request for comment.

The overall size of the market also makes it difficult for newer companies to gain a foothold, analysts say. Mr. Masserini of TAG Cyber said his team tracks around 4,800 cybersecurity vendors, and in each segment such as email security, endpoint protection and firewalls, dozens of tech providers compete.

“It’s overly saturated,” he said. 

Write to James Rundle at [email protected]