The cyber-security market will continue to attract venture capital even in uncertain economic times as the industry is largely “immune to downturn” and offers good returns on investment, say investors and industry experts.
“VCs invest where they believe they could generate a return. The larger the return, the more likely they will be to invest more money,” said Robert Ackerman, founder and managing director of AllegisCyber Capital. His US company has been investing in cyber technology start-ups for two decades.
Cyber security is the “fastest growing area in the information technology industry” and promises significant returns, Mr Ackerman said.
"It is immune to various macroeconomic forces that might adversely affect other markets,” he said.
The cyber-security market is forecast to be worth $248.5 billion (Dh915.7bn) in 2023, almost 50 per cent more than the amount spent last year, according to researcher Markets and Markets.
“Most of the cyber innovations are driven by small venture capitalist-backed start-ups. We are not competing with big players like the IBM. There are certain market dynamics driven purely by innovations,” he said.
Founded in 1996, AllegisCyber has invested in various cyber start-ups in the US and it is now looking to expand operations into Saudi Arabia, the Arab region’s largest economy.
“We are talking with various Saudi enterprises to build cyber companies here … the same thing that we are doing in the US. Very soon we will announce partnerships and joint ventures,” said Mr Ackerman, who was in Riyadh to attend the Global Cybersecurity Forum, organised by the kingdom’s National Cybersecurity Authority.
The estimated cost of data breaches globally will reach $5 trillion by 2024, whereas the overall cost of cyber crime to global businesses will touch $8tn, Juniper Research revealed in a report.
“The threat is huge ... that will also propel market growth and investments. Customers or companies have to invest in cyber technology,” said Christopher Steed, managing director and chief investment officer at Paladin Capital.
“Looking at the efforts from Saudi government and private sector, we see huge cyber growth coming out of this region,” he added.
Paladin from Washington, which is working with various companies in the Gulf region, is a global investor in technologies, products and services.
Analysts say the industry needs to be more open and customer-friendly in order to attract fresh capital.
“Traditionally, the cyber-security market has wrapped itself in a cloak of secrecy that has not served the users as well as the industry. Moreover, not many people relate with the technology, so we have to redesign and make it easy to use,” said Nathaniel Fick, general manager of US technology company Elastic Security.
Cyber products should be "simple and appealing". For example, smartphones have undergone a revolution to offer consumer-friendly designs and now they are in the pockets of everyone. Cyber technology should be "as easy to use as an iPhone", said Mr Fick.
Complexity is one major challenge in the future economics of the cyber industry, said Mr Ackerman.
“It is phenomenally complex. Unless you are in this industry for a long time or you have a deep tech background, you will be not very convinced or comfortable with the investment,” he added.
Larry Clinton, president and chief executive of the Internet Security Alliance, said governments should pitch in to boost investors’ confidence by prosecuting more cyber criminals.
“This industry is vulnerable to attacks because it is highly profitable. There is no denial and it will not change in the foreseeable future. But we successfully prosecute only 1 per cent of cyber criminals, here governments have huge responsibility,” said Mr Clinton.