US cyber security start-ups failing to actually start up

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Cyber security start-ups in the US are failing to make an impact in a crowded market, according to experts.

Venture capitalists have also seen a rise in security products that have been overtaken by advances in hacking, making them obsolete, along with larger companies “locking down” clients with more sophisticated security products and services.

Speaking with it news, David Cowan, partner at venture capital firm Bessemer Venture Partners, said: “I have never seen such a fast-growing market with so many companies on the losing side.”

Commentators have highlighted how many of the start-ups are now processions of corporates, operating as “zombies”, with little chance of becoming acquisition targets or fetching a good price in an initial public offering (IPO).

Corporate companies have also consolidated their security work, using a select few recognised companies in a bid to save money and time.

“Suddenly, we are in this situation where there are just too many vendors and too few can be sustained,” said Dave DeWalt, the former CEO of cyber security company FireEye.

“You’re starting to see companies go, ‘oh my gosh, what do I do? Can I get more capital, do I have to merge?”

It’s thought about 300 cyber security start-ups launch every year in the US alone.

However, not all venture capital firms are leaving the sector, with some investing in smaller companies.

“Start-ups that are likely to reach between US$100 million and US$300 million in value are still offering excellent opportunities for an exit,” said Yoav Leitersdorf, founder of YL Ventures and investor of Hexadite that was sold to Microsoft last year.

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Stuart O'Brien

All stories by: Stuart O'Brien

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