Venture capital in cybersecurity hit a record high in 2021 — like it did in many industries — but last year could not come close to matching those peak times.

Funding to cybersecurity startups dropped by a third in 2022, while 2021 saw a record $22.8 billion roll into startups in the sector, that number fell to $15.3 billion last year. 

However, the 2022 venture total still represents a 68% increase from 2020 — which until last year was the high-water mark for venture funding in the industry.

Big dip in big rounds

• In February, Addison, Texas-based Securonix closed the biggest cyber round of the year, a $1 billion-plus funding led by Vista Equity Partners. The startup offers security information and event management, and extended detection and response capabilities to companies.
• In January, Toronto-based 1Password closed a $620 million Series C led by ICONIQ Growth that brings the cybersecurity firm’s valuation to $6.8 billion.
• In October, Eden Prairie, Minnesota-based managed cybersecurity company Arctic Wolfraised $401 million in convertible notes led by existing investor Owl Rock.
• Switzerland-based SonarSource, which helps manage code quality, raised a $412 million round in April.
• In February, New York-based BlueVoyant closed a $250 million Series D at a $1 billion-plus valuation led by Liberty Strategic Capital — a private equity firm founded and led by former U.S. Secretary of the Treasury Steven Mnuchin.
• Also in July, Switzerland-based cybersecurity and data protection firm Acronis raised $250 million from institutional investors including BlackRock that valued the company at more than $3.5 billion.

The drop in such large rounds is not surprising, as large growth rounds were the first victims of venture capitalists pulling back on investing.

However, while early-stage rounds stayed strong in many sectors, cyber did see a substantial decline in deal flow, dropping from 862 announced rounds in 2021 to only 730 last year. 

That could spell a hard road ahead for startups if funding dries up and no buyers are around to provide a soft(ish) exit. Palo Alto Networks (whose shares are down more than 17% since the start of 2022), CrowdStrike (down more than 40%), and many other cyber giants have been battered by the tech selloff in the public market. Those companies may not be willing to do stock deals with their shares discounted and investors may not want to see large sums of reserved cash used either.