What VC Funding Reveals About the Future of Cybersecurity
… understand what they are signing up for. I was recently speaking to an investor who teaches an entrepreneurship class at Georgetown, and he tells his students that venture funding is like rocket fuel. It’s awesome if you want that rocket trajectory, but not everyone wants to be on a rocket ship. It means a lot of pressure and expectations (and hours), and anything that isn’t astronomical growth is going to be viewed as a failure.
Venture capital funds make their money on the one or two hits they happen to find, companies that sell or go public at 10 times or more the valuation the investor invested. Companies that double or triple in valuation tend to get ignored, and I’ve seen companies essentially get shut down by their investors when they didn’t see a path to that significant exit. There are plenty of successful, sustainable companies out there that are not VC-backed. They may not be rocket ships, but that doesn’t mean their technology isn’t extremely strong, and it doesn’t mean you shouldn’t buy from them.
That said, for companies interested in being a rocket ship, the right investors can be hugely helpful. Many bring a strong network of contacts they can introduce you to, operating experience in building successful companies, and a stamp of credibility that they did their diligence and believe in you enough to put their money into the company. For a channel partner looking for a product to bring in, VC-backed companies may also make more of a splash due to that “rocket ship” trajectory, which may help from a name-recognition perspective. Venture investment also typically means there is more funding available to invest in engineering, which means they will likely be able to add new and innovative features more quickly than a non-venture backed startup.
CP: How does an MSP find a hidden gem of a cybersecurity startup whose funding hasn’t been widely publicized?
SS: There isn’t any magic formula or secret website that I’ve found. It’s about the legwork of building up a network of trusted advisers, going to conferences, reading and listening to customers. Funding is not necessarily the best indicator that it’s a company you want to work with; and in fact, if you’re an MSP just looking for companies that are venture-backed but haven’t really publicized any of their funding, you’re probably looking at companies that are a little too early for you. Most venture-backed companies will make a lot of noise about their funding and their amazing new product when they are ready to go to market in a broad way. Keep in mind that oftentimes what separates an amazing startup from one that doesn’t go anywhere is its ability to sell product, not its actual technology. As an MSP, you have the ability to influence their ability to sell product, taking a diamond in the rough and turning it into a much more successful company.
CP: What do you hope attendees learn and can make use of from your presentation?
SS: That I’m a nice guy they should buy a beer for after the conference ends? Also that there is no right answer to picking the best company, but there are indicators you can use to filter out which companies have a higher likelihood of success. And perhaps most importantly, that MSPs have something that startups desperately need — a channel to sell their technology. If you find amazing technology, even if it’s not the latest hot company, don’t be afraid to leverage your sales channel to help turn that company into a success.
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