Why investment in cybersecurity companies is on the rise

Businesses are taking their digital defences seriously and it is increasing the number of RegTech cybersecurity investment deals.

Cybersecurity is becoming increasingly important for businesses of all sizes. It’s easy to see why as the number of hack attacks are on the rise. Over the past few years the news have run hot with stories about how laptop-wielding larcenists have compromised everyone from tech giants like Uber and Yahoo to governmental institutions like the British national health services and the Australian Immigration Department.

And as the number of breaches increase, so does the demand for cybersecurity solutions, which is a reason why investments in companies providing protection is growing year on year.

RegTech Analyst’s own research into the RegTech sector’s funding reveals that the proportion of cybersecurity investments grew between 2014 and 2018. In that period, the percentage of cybersecurity investment jumped from 14.4 per cent to 20.9 per cent. Looking at the first six months of 2019, that number increased to 42.6 per cent.

Saj Huq is the programme director, the London Office for Rapid Cyber Advancement (LORCA), the UK government’s cyber accelerator, and the cyber innovation lead at Plexal, the innovation centre at Here East in Queen Elizabeth Olympic Park, with a key focus on cyber.

He believes that the need for this solutions has increased as the economy has become more digitalized, leading to a bigger need for cybersecurity solutions. “Digital transformation is saturating the finance industry more than most, but companies investing in technology must make an equal commitment to cyber capabilities so they can mitigate the risk that comes with innovation,” he tells RegTech Analyst. “A sector defined by technology, this is especially important for FinTech firms. The government is making greater commitments to innovation, helping new, innovative companies enter the market. However, the threat landscape is only expanding. We need more commitment from the buying side to ensure that FinTech cybersecurity remains an attractive investment opportunity.”

As the threat from hackers is expanding, Huq also notes that the challenges for the companies supplying cybersecurity may face challenges in raising more capital. “Investors in cyber are moving towards later rounds, which presents a problem for startups that need the money at seed stage and introduces a funding gap,” he explains. “A lot of investors don’t intimately understand cyber and coupled with the increasing market saturation of new products and entrants – it’s becoming harder for promising companies to differentiate themselves in the increasingly crowded marketplace. In the UK, we are seeing significant and increasing US investment, which makes doing business abroad more appealing. Although we need to be exporting, it’s crucial that we don’t lose promising UK companies to foreign markets.”

Nevertheless, Huq is optimistic about the future of the digital defence industry. “The market will mature because it has to and we will see a shift away from the growth and success of individual products towards more integrated and interoperable propositions,” Huq concludes. “As cyber becomes a higher business priority in other industries, its importance in the fintech sector will also increase. The next big shifts in innovation – 5G, autonomous vehicles, IoT – all carry with them a significant cyber risk, so it’s crucial that cyber firms are supported.”

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