Highlights:

  • The fourth quarter of 2023 saw cybersecurity startups raise USD 1.6 billion in funding, a 45% decrease from the USD 2.9 billion raised in the same period the previous year.
  • The research claims that a change in investor focus in 2023 caused a reduction in the total amount of funding raised.

The number of cybersecurity firms funded in 2023 increased, but the amount of financing raised surprisingly declined, according to a new analysis released by cybersecurity recruitment agency Pinpoint Search Group.

The cybersecurity market had 437 transactions in 2023 valued at USD 8.7 billion, spanning 346 fundraising rounds and 91 mergers and acquisitions, according to the Pinpoint U.S. 2023 Cybersecurity fundraising report. While the amount raised decreased by 40% from the USD 14.5 billion raised in 2022, the transaction volume increased by 14% from 303 rounds in 2022.

The fourth quarter of 2023 saw cybersecurity startups raise USD 1.6 billion in funding, a 45% decrease from the USD 2.9 billion raised in the same period the previous year. These figures were also replicated in Q4 2022. In contrast, for the entire year of 2023, a greater number of businesses raised venture capital in the fourth quarter—about 85 businesses did so, up 21% from 70 businesses in the same period in 2022.

The research claims that a change in investor focus in 2023 caused a reduction in the total amount of funding raised. In line with more general market patterns reported by Crunchbase Inc. and PitchBook-NVCA Venture Monitor last week, investors have shifted their strategies, allocating a larger percentage of their capital to early-stage cybersecurity projects.

The data demonstrates the change, with a significant portion of total funding coming from seed, Series A, and Series B rounds. Even if overall investment was declining, 2023 seed rounds accounted for 42% of all funding deals, accounting for more funding transactions.

The report also identifies additional factors at work, such as general economic considerations that affect the functioning of venture capital firms. These include increases in interest rates, inflation, and market corrections to address years of unnecessarily high valuations.

Mark Sasson, Founder and Managing Partner at Pinpoint Search Group said, “Overall, professionals in the cybersecurity sector have reason to be optimistic. While the industry experienced real pain in 2023, the demand for security solutions continues to grow. The impact on the professionals in the space will depend on how quickly investors and founders can transition from early-stage innovation to growth.”