Cybersecurity Proliferates

Across the Venture Landscape

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CYBERSECURITY PROLIFERATES ACROSS THE VENTURE LANDSCAPE

Executive summary
Hybridization of the digital and physical FIGURE 1.1: VC activity in cybersecurity
in business and everyday life continues
$8 700
to evolve. Cybersecurity challenges
have multiplied as the march toward
$7 600
digitization proceeds. Particularly given
the impact of the COVID-19 pandemic, $6
shifts to remote or flexible workflows 500
and a surge in e-commerce have $5
underlined the need for digital security. 400
The growing number and variety of $4
threats can overwhelm incumbents 300
locked into existing architectures, $3
creating an opening for innovative 200
$2
players to invent new techniques and
tools to help keep business systems $1 100
and information flows secure.
$0 0
This market review focuses on 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
cybersecurity as it relates to financial Deal value ($B) Deal count
services, payments, and the future
Source: PitchBook | Geography: Global
of commerce. We address the *As of August 18, 2020
intersection of corporate and startup
innovation, venture investment, and
broader industry shifts to provide FIGURE 1.2: VC activity in cybersecurity with corporate participation
a concise overview of key venture $4.0 200
trends in cybersecurity. We also deep
180
dive into three key segments: fintech $3.5
& cybersecurity, digital commerce & 160
identity, and cybersecurity & IoT. $3.0
140
$2.5
120
KEY FINDINGS $2.0 100

• 2020 is on pace for record 80

$1.5
VC investment, potentially 60
to exceed $8 billion, even as $1.0
global venture funding slides 40
slightly. $0.5
20
• Corporates have played an
$0.0 0
integral role in terms of both 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
liquidity and investment,
but given the market’s Deal val ue ($B) Deal count
fragmentation, the bulk of Source: PitchBook | Geography: Global
innovation still is derived *As of August 18, 2020
from smaller, newer players.
• Upward-trending deal
metrics suggest maturation
and emergent category
leaders in cybersecurity
across IoT and identity
management.

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 1
Market overview
2020 is on track to be a record- FIGURE 2.1: VC activity in cybersecurity by quarter
breaking year for the cybersecurity $2.5 200
vertical. The first quarter of the year
180
already set a single-quarter record
with $2.3 billion, reaching $5.4 billion $2.0 160
by mid-August. While current deal 140
pace indicates a slower third quarter
$1.5 120
at $1.6 billion, 2020 remains on track
to be the best year on record, reaching 100
$8.3 billion in total. $1.0 80
60
The COVID-19 pandemic did little to
slow the acceleration of investment $0.5 40
in cybersecurity, even while global 20
venture funding is slowing; as of
$0.0 0
midyear, 2020 is on pace to record
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
approximately $250 billion in
aggregate deal value relative to 2008 2009 2019 2020
$272.1 billion in 2019. The need for Deal value ($B) Deal count
robust security systems and digital Source: PitchBook | Geography: Global
infrastructure became evident as *As of August 18, 2020
the pandemic forced businesses to plowing even more capital into well- segment-specific tools for IoT and
further digitize. With that shift came positioned mature startups as well fintech, among others. Median late-
an uptick in attacks across multiple as diversifying into newer ventures stage valuations have soared to a new
points in the chain of communications focused on leveraging increasingly high; overall, albeit choppy, deal size
and commerce, from classic email powerful DevOps and artificial metrics have grown more robust.
phishing to multi-vector large-scale intelligence mechanisms to create
attacks. As a result, VC firms are

FIGURE 2.2: Median VC financing size ($M) by FIGURE 2.3: Average & median pre-money
stage in cybersecurity valuations ($M) in cybersecurity
$20 $300
$17.8
$18 $241.9
$15.0 $250
$16
$14
$200
$12
$9.0 $150 $119.1
$10
$8 $6.0
$100
$6
$45.0
$4
$2.0 $1.9 $50 $22.0
$2
$0 $0
2017
2013

2014

2015

2016

2018

2019
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020*

2020*

Angel & seed Early VC Late VC Median Average

Source: PitchBook | Geography: Global Source: PitchBook | Geography: Global
*As of August 18, 2020 *As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 2
Fintech &
cybersecurity
The proliferation of fintech FIGURE 3.1: VC activity in fintech & cybersecurity
throughout the 2010s has led to
$450 45
the emergence of mature, venture-
backed fintechs as category leaders. $400 40
In turn, this has led to significant
investment by incumbent financial $350 35
services giants into digitization of
$300 30
tools and workflows. With stakes
increasingly high in the mostly remote $250 25
working environments prompted
by COVID-19, there are a growing $200 20
number of large companies across
$150 15
the fintech spectrum investing
heavily in cybersecurity. As frictionless $100 10
payments increasingly become the
norm, ensuring their security—from $50 5
routing remittances to executing $0 0
capital markets transactions— 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
continues to grow in importance and
Deal value ($M) Deal count
complexity. Not just data but controls
Source: PitchBook | Geography: Global
systems and infrastructure are *As of August 18, 2020
being attacked, often in subtle ways
that lay the groundwork for future
breaches rather than immediate FIGURE 3.2:VC activity in fintech & cybersecurity by quarter
threats. In parallel, educating financial $140 14
services professionals—about the full
and evolving array of sophisticated $120 12
phishing, messaging, and false flaws
in their tools—is an ongoing challenge. $100 10
Cyber threats aside, empowering
$80 8
users in best practices as well as
general education is likely to be a $60 6
growing field.
$40 4
Consequently, venture firms are
also backing more new businesses $20 2
that focus on security solutions for
fintechs. Given the fledgling nature $0 0
of the market, venture investment Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
has not been nearly as robust as 2008 2009 2019 2020
observed in other cybersecurity
Deal value ($M) Deal count
Source: PitchBook | Geography: Global
*As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 3
segments, although promising signs FIGURE 3.3: VC activity in fintech & cybersecurity with corporate
exist. At $189.3 million invested participation
through mid-August in 2020 across
$300 14
just 11 financings, the year is off
pace from the prior highs observed
12
in 2018 and 2019 in terms of volume $250
and VC invested (see figure 3.2).
However, Q2 2020 did see the 10
$200
largest quarterly investment yet
at $116.2 million, which suggests 8
some businesses are maturing and $150
gaining ground. Corporates are also 6
increasingly active, participating in
$100
12 financings in 2019 (see figure 3.3); 4
a more recent example round is the
April 2020 $12.5 million funding of $50
2
Sayari, which developed a platform
that helps financial institutions and
$0 0
multinationals mitigate risk and 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
manage compliance related to KYC
Deal value ($M) Deal count
and money-laundering regulations.
Source: PitchBook | Geography: Global
Alongside the flow of venture funds, *As of August 18, 2020
more established incumbents and
category leaders are redoubling
resources allocated to this critical FIGURE 3.4: VC activity ($) in fintech & cybersecurity by size
segment. 100%

90%
The growth in the fintech ecosystem
overall as well as the massive COVID- 80%
19-driven shift to digitize commerce
70%
flows has expanded the overall
market, so future inflows of capital are 60%
to be expected. Pure-play solutions will 50%
have to compete with the expansion
of broader product suites into their 40%
focus areas, but segment leadership 30%
is still possible across key areas such
20%
as cryptographically secured asset
management or specialized risk 10%
analytics for select fintech segments
0%
such as insurers. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*

Under $500K $500K-$1M $1M-$5M $5M-$10M $10M-$25M $25M+

Source: PitchBook | Geography: Global
*As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 4
Digital commerce
& identity
Fintech’s internal processes FIGURE 4.1: VC activity in digital commerce & identity
and handling of data streams
$1,200 70
may preoccupy many within the
cybersecurity realm, but the uptick in
60
massive consumer identity breaches is $1,000
utmost in the typical consumer’s mind.
As commerce and media increasingly 50
$800
move online, digital identities are
becoming more unified across 40
the major tech platforms as they $600
consolidate their market share and 30
relative power. However, multifarious $400
consumer profiles—often linked by 20
relatively similar security protocols
given the popularity of two-factor $200
10
authentication, single password
prompts, and usernames alone—still $0 0
exist, scattered across the array of 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
business websites visited. Deal value ($M) Deal count
Source: PitchBook | Geography: Global
These streams of digital commerce, *As of August 18, 2020
laden with individuals’ personal
information, are flowing more heavily
as 2020 progresses, presenting FIGURE 4.2: VC activity in digital commerce & identity by quarter
targets ripe for simple-to-complex $700 25
hacking methods. Theft of credit
card information, government $600
20
identity, and other personal data
is too lucrative for bad actors $500
to resist. Simply put, legitimate 15
$400
business innovation/investment still
lags behind criminal schemes. As $300
businesses and consumers share 10
the blame for lax security protocols, $200
considerable amounts of capital and 5
investor interest are being directed to $100
developing solutions to secure both
entities. Techniques include monitoring $0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
queries for personal information based
on a website’s authentication protocol 2008 2009 2019 2020
and location, plus tools for businesses Deal value ($M) Deal count
or consumers to transform their
passwords in a variety of ways, such Source: PitchBook | Geography: Global
as employing more secure numeric *As of August 18, 2020
certificates. Centralized platforms for
monitoring multiple accounts at the
organizational level are also garnering
funding, as are customer-verification
tools.
Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 5
 FIGURE 4.3: VC activity in digital commerce & identity with
Although it is relatively early days, corporate participation
and there is stiff competition from
incumbent technology giants, venture $700 20
funding has surged for startups 18
targeting the digital commerce $600
16
& identity space, peaking at 60
financings in 2018, with an aggregate $500 14
of nearly $2.5 billion invested from
12
2018 to mid-August 2020 (see $400
figure 4.1). 2020 is well on pace to 10
exceed any other single-year tally, $300
8
however. Quarter-over-quarter
comparisons yield a significant uptick $200 6
for Q2 2020 over Q2 2019 in terms
4
of volume, although VC investment $100
shrank somewhat. Given the size 2
of this market, it is important to $0 0
recognize that outlier financings 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
can skew results, as was the case
Deal value ($M) Deal count
with Auth0’s $120 million funding in
Source: PitchBook | Geography: Global
July of 2020. However, barring any *As of August 18, 2020
significant moves by incumbents,
or pivots by tech giants, it is hard
to foresee anything but continued FIGURE 4.4: Average & median VC financing size ($M) in digital
investment flows into this space. A commerce & identity
key theme for the wide-ranging arena
$35
of cybersecurity is that as threats
$30.1
and methods of attack evolve, so
$30
too will solutions, which will require a
$25.3
proliferation of innovators from both
$25
individual enterprises and nimble
teams across larger organizations.
$20
Consequently, there has been
significant investment in development
$15 $13.0
and VC by corporate players; they $11.0
joined in a record aggregate of VC
$10
invested across 16 financings, topping
2019’s tally of $447.4 million by well
$5
over $200 million (see figure 4.3). It is
difficult to imagine such interest will
slacken any time soon, so we expect $0
2016 2017 2018 2019 2020*
significant capital flows into this space
going forward. Median Average
Source: PitchBook | Geography: Global
*As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 6
Cybersecurity & IoT
The Internet of Things (IoT) has FIGURE 5.1: VC activity in IoT & cybersecurity
enjoyed ups and downs in its
$900 80
hype cycle, but as is usual in the
development cycle of a budding $800 70
technological field, progress has
remained steady. Taking advantage of $700
60
advances in general connectivity, near- $600
field communication (NFC), and the 50
onset of 5G wireless, entrepreneurs $500
and larger tech companies alike 40
$400
have been developing devices and
tools for multiple use cases. The 30
$300
working conditions resulting from
20
COVID-19 have made an urgent $200
case for connected smart homes, 10
$100
factories, offices, and warehouses
to better monitor and respond to $0 0
shifting conditions. Each of those 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
primary location categories has Deal value ($M) Deal count
different needs, but given the rise of
Source: PitchBook | Geography: Global
flex-location workflows, consumer *As of August 18, 2020
considerations are taking precedence
more and more in 2020. Residences
and offices are primarily geared FIGURE 5.2: VC activity in IoT & cybersecurity by quarter
toward ideal working conditions $600 18
for people with respect to comfort, 16
efficiency, and hygiene. Using $500
residences as an example, especially 14
with flex-location workflows likely to $400 12
become more popular, home networks 10
will increasingly interact with critical $300
business systems and thus must also 8
be secured. Interoperability across all $200 6
devices also lays bare some potential
4
security vulnerabilities, particularly $100
when it comes to smart wearables 2
and broader home wireless networks. $0 0
Accordingly, access attempts or Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
logins across any types of devices into
business accounts and tools will all 2008 2009 2019 2020
have to be monitored, especially per Deal value ($M) Deal count
the types of requests being made.
Source: PitchBook | Geography: Global
*As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 7
With such a compelling market FIGURE 5.3: VC activity in IoT & cybersecurity with corporate
opportunity, VC investment has participation
flooded into enterprises targeting
the confluence of cybersecurity $800 30
and IoT over the past several years.
2020 has already seen a record high $700
25
of nearly $830 million in venture
$600
invested, eclipsing the previous high
of $748.6 million set in 2017 (see 20
$500
figure 5.1). Although volume has
slowed considerably, suggesting that $400 15
market and/or category leaders
may be emerging and raising larger $300
and larger sums, Q2 2020 still saw 10
15 completed rounds, just a single $200
financing higher than the tally seen 5
in Q2 2019 (see figure 5.2). However, $100
2020 has observed more consistent
funding flows, with Q1 bolstered by $0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
outlier rounds to notch $478.0 million
invested yet Q2 recording $176.0 Deal value ($M) Deal count
million and Q3 $172.9 million by mid- Source: PitchBook | Geography: Global
*As of August 18, 2020
August. That pace potentially puts Q3
on target to surpass $300 million, one
of the more robust single quarters on FIGURE 5.4: Average & median VC financing size ($M) in IoT &
record. cybersecurity
Given the variety of use cases within $30 $27.6
this space, it is not surprising that
corporate players have contributed $25
to a record amount of deal value thus
far this year, and, moreover, have been $20
involved in dozens of rounds over the
past several years (see figure 5.3). As $13.4
$15
is common when more established $12.2
traditional and corporate venture
firms participate, average financing $10
sizes have skewed upward with a
handful of companies garnering $5 $3.5
significantly sized rounds. The median
has also soared to a new high in 2020 $0
year to date (see figure 5.4), likely due 2016 2017 2018 2019 2020*
to the unique deal-making conditions
this year in which only the most Median Average
robust businesses are readily securing
funding. Source: PitchBook | Geography: Global
*As of August 18, 2020

Mastercard Start Path & C&I: Cybersecurity Proliferates Across the Venture Landscape 8
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