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Value Versus Valuation: The Next Frontier For Security Investments

 

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Venture capital funding from last year surpassed 2014’s total, and in the wake of this continued increase in investment, “unicorns” now abound in VC portfolios—currently clocking in at well over one hundred. This is also noticed more specifically within the scope of the cybersecurity market. To date, the aggregate value of the top 10 cybersecurity exits is nearly $16 billion, a favorable sign for investors. But the constant streams of breach media coverage and a chance at scoring a “unicorn” are goading investors to bet blindly. Investors are sometimes guided by flashy trends and overlook the true value vendors offer customers. The prospect of high valuations, not actual value, seems to be guiding some investments.

Until recently, the security industry desperately needed disruption to adapt to the rapid adoption of mobile, cloud and the Internet-of-Things. Everyone wanted a piece of the action—and they took it. Now, investors and CISOs alike are left with an assortment of new technology that is part solution, part insurance policy; with no way of knowing its true value. Amid this barrage of new solutions, some VCs have lost sight of what’s worth investing in and CISOs aren’t sure if solutions can actually deliver on their promise. To solve this problem, it’s time to move from valuation to value—from speculation to measurable utility.

The Reality of the Security Market

With new technologies accessing networks at an accelerated pace, the security measures we employed just five years ago are no longer enough to stand on their own. Threats are evolving and changing every day as attackers become more adept at infiltrating these new devices and breaking down our walls. It’s inevitable in the cat-and-mouse game that is security that as employees become even more tied to their connected devices–smartphones, smartwatches, tablets, etc.–CISOs will continue to scramble to understand how to control access to their network and ensure their data is secure. This challenge has left most organizations today with a layered security approach created to address specific risks. However, current security solutions operate in complete isolation and report their findings independently of each other. The result: organizations with disjointed solutions, alert storms and poor security postures, and investments that continue to perpetuate the solutions driving these issues. Attackers are exploiting these weaknesses today.

Investing in Security Today

To circumvent this growing problem, it’s imperative for the next wave of investment in security vendors to take into account the actual value they will deliver to customers. Until now, investment has been a very cut-and-dried approach; the demand for a product equals the reason to invest. But demand is never ending for security—threat actors continue to launch attacks against private companies, massive enterprises, and even the government—requiring VCs to become more nuanced in their approach. The alternative is to continue playing in a ballooning investment market that will lead to VC and client fatigue for security firms.

To identify the right security investments, investors need to fully understand the underlying security problems from the client perspective and evaluate how different solutions map back and deliver on vendors’ promises. For instance, investors can check in with current customers to assess how they feel about the product. Are they continuing to invest in the solution? Have they done away with other similar products they had previously employed? It’s not about preference, brand or previous wins; it’s about the value vendors actually deliver to their customers and how those customers are responding to it. Additionally, VCs can use this insight to gauge the incremental value that a prospect’s solution adds to other solutions in their portfolio and the general security ecosystem. If the added value is there, it can be a good investment. If it can’t be measured, it should be a red flag.

How Can Vendors Address This Problem?

Despite the fatigue and confusion that comes with investing in security, there are many vendors solving real security problems for their clients, rather than just jumping on the latest trends.

To avoid falling under the “trend” label, security vendors should focus on their strengths—particularly on what they can properly secure. It may not be directly tied to the hottest buzzwords of the moment, but, if thought about in conjunction with the collaborative and holistic experience they can create for customers, it can play to their favor. It’s sometimes best to work with others to solve complex problems, which security undoubtedly has become. Vendors also need to closely collaborate with their clients to create persistent value and become an integrated part of the enterprise ecosystem.

Even though security is an important piece of today’s network infrastructure, it doesn’t mean customers can—or will—continue to absorb solutions that are half-baked or temporary, and they shouldn’t. Yes, purchase decisions are being driven by everyone, including boards seeking to mitigate security problems and liability. But, although demand may seem healthy, investors cannot bet on every new security solution and, as they gain a thorough understanding of security issues plaguing CISOs from the inside out, they simply won’t. Focus on the security vendors that provide the right people with the right information at the right time to assess and mitigate their cyber risk. They will come out on top.

Security is one of the biggest challenges organizations face today. Investors see this and know they can find value in the solutions that solve this problem. But only vendors that deliver will survive the trials of time—and that will have everything to do with the value they offer, the real problems they solve, and the business outcomes they provide. In this process, investors need to be more discerning in their investments to ensure the best remain. Otherwise, security will continue to be plagued by too many solutions that offer to solve the latest big problem, only to fail to improve an organization’s overall security posture.


Image credit: CC by kris krüg

About the author: Feris Rifai

Feris Rifai is the founder and CEO of Bay Dynamics.

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