Venture capital invests in DevOps and AI security despite quantitative tightening

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Cybersecurity has come a long way since antivirus on CD-ROMs in the early 2000s. Moving to Software-as-a-Service has simplified AV protection to his one update click. As businesses leverage storage and computing infrastructure outside their four walls, cyber defenses have pushed corporate data and mobile devices into the cloud. This is the origin of the hybrid blueprint companies use to survive the coronavirus shutdown.

The cloudification of this work will result in a diverse environment of cybersecurity products, extending protection from basic on-premises protection to developer and firmware environments and even new areas such as AI algorithms. Pervasive innovation drives spending on information security and risk management up 11.3% to more than $188.3 billion, according to Gartner. Given the growth opportunities in vendors with strong product-market fit, it’s understandable why security venture capitalists continue to unearth startup gems.

DevOps shifts security to the left. “Changes in architecture and development create new opportunities for security,” said James Green, general partner of CRV and named to Forbes magazine’s 30 Under 30 in 2022. increase. The best-positioned startups to raise money are usually companies with defensible moats that work to solve problems. A difficult problem that others haven’t tackled. One example is security and DevOps integration. This allows developers to prioritize security issues and remediate them quickly. “Existing source code analysis solutions are not good enough,” Green points out. CRV’s investment in Project Discovery and Tailscale puts security in the hands of developers, reducing silos and remediation times.

For NEA Partner and Forbes 30 Under 30 of 2016 Aaron Jacobson, Flox is a compelling meeting of security and DevOps automation business. NEA led a $16.5 million A round on Flox in February this year. “Their build system helps developers escape the notorious ‘dependency hell’ of troubleshooting software and configurations instead of writing new code,” he says. It also helps customers protect their software supply chain by tracking the lineage of their packages of software in use.

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AI is the hottest moat in security. Machine learning and AI can hinder or assist security teams. “We see AI as part of a technology fabric that can provide advanced capabilities in threat detection, incident response and remediation,” said Oren Junger, a former CISO who now heads security operations at GGV Capital. I’m here. For Green, this presents an opportunity for founders to build solutions that prevent data leaks, PII, prompt his injection, or unauthorized access to his LLM (Large Scale Language Model), which is unique to the company.

Alex Doll, founding director of Ten Eleven Ventures, said it invested in HiddenLayer to protect ML models, including LLM, from data poisoning and other attacks. He added that data security and governance become more important as datasets grow, but these issues are addressed by portfolio companies Vaulttree and Immuta. The point is that AI is often bundled with automation that mimics human behavior. Another of his investments at Ten-Eleven, his Kasada distinguishes human traffic from bot his traffic, combats financial fraud, and provides clean data for accurate marketing. “The only way to counter ‘bad-intentioned’ automation is to have ‘good-intentioned’ automation,” says Dole.

AI automation could also accelerate the spread of disinformation. His partner Ted Schlein, chairman and general of Ballistic Ventures, sees disinformation as another form of malware that is “more insidious than anything modern society has ever dealt with.” While computer viruses harm corporate assets, the spread of disinformation, whether accidental or malicious, harms people. Shriner invested in Alethea to identify and root out fake news before it spreads.

Cloud security, compliance and identity – VCs are still funding solutions to these perennial security problems. “We see great opportunities in cloud security solutions, compliance, identity and automation,” says Junger. The team has invested in over 15 security startups, including Orca Security for agentless cloud security, Drata for continuous compliance and GRC, and Descope for drag-and-drop integrated authentication. “We spend a lot of time investing in tools that security professionals deem essential, especially in today’s challenging market environment.”

Despite being stingy with spending, security VCs are writing checks. The founders have battled rate headwinds since last March, when the Fed launched its Quantitative Tightening (QT) policy, raising rates by more than 5%. Venture capital funding for cybersecurity fell 32.19% from $23.3 billion in 2021 to $15.8 billion in 2022, falling to $6.5 billion in Q1 2022 and It got off to a modest start with $2.7 billion in funding in the first quarter.

“After 2021, it’s going to be a tougher time to invest,” says Green. But the search for the next Adalom (acquired by MSFT), the next Proofpoint (PFPT) continues. Fundraising may slow down in 2023, but checks from VCs continue and sooner or later these investments will be followed by exits, rewarding funds and corporate insiders alike. . “We are still very aggressive in evaluating and funding companies, including subsequent rounds in companies we have previously invested in,” says Dole. “Security budgets have proven to be the most resilient,” Junger added. “Rounds are still going, but at a more modest pace.”

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