About the talk
Leading venture capitalists discuss investing in cybersecurity startups
Next panel, this is another fantastic one focusing on the funding for startups on this panel. We have Big Spenders and big idea generation did generators people that have funded many many startups as well as those who have had successful exits fantastic moderator who herself is also a big spender in the cyber security area. Let's hear it for our next panel for funding for startups. Thank you. And they're still getting locked up. Bye-bye raise of hands how many people this is their first year at the Cyber investing Summit. Wow,
fantastic has been here for two or three years before. Wonderful says you've seen we've actually grown this event pretty significantly in just a short short start beginning. It's actually a few people know, it's actually a family-run business. I started this with my my cousin Lindsey and I are our mothers Hillary and Adrian and I ever wearing a blue tag is actually a family member of ours here. Today was helped us put this a fantastic event together in 2014 actually helped sponsor the world's first cyber security ETF and what we learned was that there was a ton of interest for
investing in cybersecurity, but there wasn't really this venue to to bring all the people with the idea of the product Solutions and those with the capital in the desire to invest in this industry. So what we really hope to do is build this event up have more companies from both the public and the private side and have many more people, get to learn about the the critical opportunities. There are four funding this very important industry without further Ado our next battle. Thank you.
What's the price of an order? Pipeline on Katie gray partner on the investment panel here today the first one I think just recognizing that that 2017 was actually a banner year for Venture investing in cybersecurity 424 New Deals last year 5.1 billion dollars invested that's quite a few others who are out here in the audience are some of the investors who have have placing bets on those companies having everyone on the panel just introduce themselves just say a couple of words about the firm that represents and that you are here with maybe a little
bit. You invest in in fiber and then maybe I'll see you around that you are obviously that you have many children. You love all of them. Highlight one investment just to give kind of a flavor of the types of things that you do a great. Thanks, Katie. So Bob is cyber. We are a cybersecurity focus for when I actually have been investing in cyberport, depending on how you Define Cyber 16 to 18 years. So back before it was cool. So when we shifted the firm's Focus to 100% cyber five years ago, it wasn't very cool.
When we did the world's first dedicated cyberpunk 3 years ago. It was a very cool summer the last three years. We got to be kind of relevant. My partner Dave DeWalt a little earlier today always describe Dave is the apex predator. In cybersecurity, you'll see where that comes from. Our firm is weed actually got a platform and so leave the Cyber itself is early-stage early growth. So we kind of pick up things that Siri is a up to engage in a series C or series D where Dave typically tends to be more involved. We also have a platform do call datatribe,
which is located in Columbia, Maryland where we actually start companies are team are all lights operating Executives a we've been at this for quite a while and then we talked about earlier a lot of me too in this space with great thing about the Venture Community. Is it slow to adopt new ideas and then when it finds a new ideas. Merritt it since over-capitalized the hell out of it. We're seeing a lot of that has fiber today and our approach was to look at the things that we see in the marketplace of me like but also take some of art or expertise in summer
access to disruptive innovation coming out of government labs. And bring those two together and actually start companies and allows us to go earlier in the process allows us to build more value in Franklin allows us to build more differentiated portfolio. I think the last question was that company last year. Probably a Drago I would be a great example Drago's industrial control security team is a couple reaction started a tribe came out of the National Security Agency that's offensive team from the NSA tremendously deep domain expertise and we work with them to get to come to going at
datatribe and when they were in for their series a financing we love the series a financing spell prior to starting I was the CEO and co-founder tenable network security ran after about 15 years and I really got into Angel Investing a lot of those Investments rolled into ghoul attack Adventures. We focused primarily on cybersecurity all the way up one drone anti-drone company called apartment 13. Falling on people's stadium and what not. And now we're Ang from Mob pre-revenue
customer all the way to participate very excited about that last year. We invest in a couple companies and one of them is. And I got a mention them because three of these are two brothers. I never here and maybe individual I think I can take any one of them but together we're going to catch up on me. So looking forward to the panel. City Heights Lumber Capital straight to be here. We are based out of Silicon Valley in the Bay Area. I've also lived in
work until it before we have an office and I'm presently based here in New York and we're actually investing really across the whole it Spectrum cyber security has been the area polka since the early 90s my partner David blumberg with the fourth operating executive at check point software in the early 90s. So we've been investing in cybersecurity for many decades at this point, but where were abroad Information Technology. We had a really nice I feel with the company last year called nutanix and hyper-converged cloud storage space and we're investing across mobile social digital etcetera,
Leave us to get our fourth one is about 210 million dollars. Are typical entry point three products pre-revenue will invest as little as maybe half a million dollars up to maybe 5 million dollars in terms of the initial check size and then have the ability to follow on over the life of the company last year. We let us eat investment in in Israeli technology company and I think if you look at the distribution of cyber investing in 2017 about 70% of it with Silicon Valley or base Solutions State of California. Number two behind Silicon Valley was Israel at about 7%
smaller, but none the less, you know, very relevant Source amazing opportunities in terms of early-stage Technology out of Israel that this company Medicaid is that Healthcare iot cyber-related Company focused really specifically on the health-care vertical texting devices that are internet-enabled across the hospital healthcare system in a few really talk to Folks at the checkpoint Palo Alto there really much more focused on the side of the shopping and not Jobs in terms of some of those devices and I think it ties in nicely for like ransomware which we think is a big problem
is going to continue to grow in the coming years another cyber company bio catch that we were early investors in a few years back to phrase a large round 202 last quarter and their focus on behavioral biometric authentication. So just to sample in the cyberspace. We probably have about a dozen across the recipe of our portfolios. I am leaving our strategy and BD several years ago and is looking at a number of different technology Parts Coon of the enterprise
system to leverage network security team Cloud security teams are our portfolio products. And what we do is our business coupon. The strategy in BD side is work with a number of different Technologies to integrate into those existing infrastructure. So we've got about a hundred 50 + Partners technology actually integrated with 250 other 250 immigration across 750 partners that were extremely active across the entire infrastructure, play nice collecting moving. This information may be acceptable to give it to have multiple Technologies.
The things we do from investment side because we're so open and we're so forth, and wanting to partner and integrate with technology than we actually look at. This is the place to kind of get smart with certain stuff that are in the southern part of the industry. So we typically do not necessarily Angel but things are a little bit later on in the maturity of the company. We will never lead around purse a Note 4 come in after alongside with the lead, but we've been fairly active than enough across the it timer
until we've done things with no flash point spread corsaint. We work closely with a good company. Coffee-Mate invested in on both sides during probably no one there to deal the year on that side. Greatfixo on master has several agencies in the US intelligence community. So rashly founded in 99 as well as different from a security defense intelligence agency National Security Agency cyber security is one of as you can imagine one of the key areas that we that we do do a panel as well. As other speakers are former CEOs
in the cyber security space and in companies as well. Stage perspective is agnostic. So we'll invest usually we're looking for innovation in the commercial sector that has applicability within the intelligence Community Market, but we are also investing in companies that are age of 7 cyber security deals last year. We don't always publicly announced the deals that we do. So the ones that are publicly announced are on our website and I saw the only one of the ones we Security
encryption. Also someone who came out. Security credentials are great introductions, and I would be interested to see is maybe just a show of hands in the audience as to how many people here represent cybersecurity startup. Great. Okay, so there's some folks in that out there. So feel free to come talk to any of us afterward. We're very interested to hear about what you're doing. How many people are in represent like a venture investor? Have a good number as well. So
we're kind of preaching to the choir here with you guys. How many people are later-stage investors may be looking kind of public site of sayings. All right. So just a couple and how many people here are more from the industry side. So companies sisters Etc looking for several questions that we heard from from Dave earlier about some of the areas that he thinks her of interest between Hempstead in terms of weather opportunities, and maybe you can tell us a couple of areas sort of like, you know hot or not. Right?
So a couple of areas of investing in terms of 2018-2019 years. What do you think is hot and that you guys are looking toward as interesting investment areas over the next couple of years. And what do you think? Bring it back will be a little quieter to keep your fingers endpoint is something for depression automation thing has been quite over. We left it in there. Deception in DK Market has seen a lot of Investments Philadelphia Community and those markets intensely
session I think for us in terms of cyber security. Almost our whole find is really some component of kind of AI machine learning deep learning application and I heard some Snippets from the earlier panels at a really allowing automation scalability a greater speed and optimization across different verticals weather is in a digital space, whether it's in that you know, Enterprise Mobile social and then specifically around 5, if I think broadly speaking, we love to see that kind of infusion of intelligence. If it
really screams out of us about you do a perfect for anomaly detection. So any of these different characteristics where you're just as a sea, so you're just drowning in This is a manual process that can be automated with in a machine-learning, you know deep learning process makes a lot of sense and we get excited about looking at that. That's that's number one. That's why I think it's funny. We've been investing actually look at it. I think that you know, it was about a billion going maybe 7 or
around somebody cyber security application. So I think there's still a lot more upside not returning number one. Number two, maybe I think there's a lot of cybersecurity and something like by 2020 25% of all Enterprise in a breeches are going to be iot related. So, you know, we think that that is an area that still in the relatively Nations pages in this opportunity for investment. I think third Willy vertical ice applications as I touched on or around these applications need to be
customized for across the financial services Insurance Health Care is address. So I think we're going to see you no more of that as well. As others are some things that we're excited about with inside Burnet and again cyber relatively speaking in terms of expenditure is is a relatively niche market. We are still very probably Focus as you know, investing in early-stage technology. Yeah hot and Nod is definitely a fun question. So everybody has Legacy stuff to anybody make cyber hygiene easy for legacy thing. So patching authentication, you know making these big crunchy or
soft on the inside crunchy on the outside networks a lot harder to hack definitely good. So, you know, we're seeing a lot of interest in new Texas patch management new types of security on the inside things like zero trust movie Target that kind of stuff. I'm also seeing a lot of interest outside of the US and trying to keep the NSA out of stuff rice people want encrypted Communications, right? They can't just you know, they can't trust just trust the major chat Bender the day so they want to have their own soracom cinturon control of those kind of things. That's all hot.
Probably maybe 20-25 endpoint AI Next Generation sprinkle, whatever you want in there OS Cleary Vino blockchain, you know that kind of stuff. I'm not going to see I just don't see it happening. And then it a hot area. I think every cent the cloud. What does that mean? You know, is it collecting Telemetry from your sass applications? I have yet to see store to the hunt teams hunt on sale for Telemetry logs are hunt on Dropbox, but it's not really there yet and there's companies in that space. I'm not going to say it's hot to talk
for me. And so I think that's where these adversaries today was talking about my the operating undetected and they should turn into decent message. So somebody might my dear partner Dave got to give away our Playbook adrift. What we think is hot not going to say a lot more about that. But I but I will say what are things that we do this earlier that the good thing about the Venture Community is it will over-capitalized inequality opportunity and as a result of companies and Dave talk about some of the some of the metrics and turn those companies will actually turn out to be reasonable exit
Jay talked about for the 300 million dollar threshold 150 to 300 being sort of an honorable valid point the things we can look for things are truly disruptive and where we draw some of those insights from is earned her standing up offensive tactics, and maybe it's a reflection of the background of our team and where we come from but that we actually think that's offensive techniques and tactics in forward defensive solution should be built. And so if you look at what we do it at datatribe up, for example, we draw Prince Ali from the NSA principally from offensive teams
because eventually those those techniques will be distributed proliferate through the hacker Community. It will not be coming more properly disseminated and that will be the next wave if you will of Fred Becker. So we tend to live there. We also tend to think about data science a lot a lot of what we're doing today for vanilla goes to a dyke with a thousand weeks in it and it was running around with a thousand fingers trying to plug the hole that's necessary. That's not how you get ahead of this at the end of the day the way you get ahead of this is the end of day is think
about how do you stop water from coming through the Dyke and those are data science problems, you mentioned in Vail homomorphic encryption a great example things around data provenance will turn out to be really really significant for the methodologies out of better manage data to build inherently more secure systems in terms of what's not very interesting today world. You love it. I want some company. I don't I don't care if you're 10 or 12% better than everybody else out there. We have too many undifferentiated me to companies that have a track that a lot of this capital
in the challenge. Of course is it just raises the stakes in the cost of being successful for everybody that's doing things that are truly disruptive. So for us, you know, the fundamental question we asked every time we're looking at anything is this is fundamentally change the game but doesn't change the game. And as you look at that you you've got to be willing to think outside the box little bit if I go back 5 years ago talk with the team that started carbon black great great pedigree with that team and looking at in point and when they talk to the venture too many but they kept back is
nobody wants another endpoint. Nobody wants the other endpoint until the market took an endpoint public last 45 years later. So unconventional What time is the better way to go a conventional wisdom tends to be over capitalized density undifferentiated and a long-term. It's the unconventional wisdom. It really comes from Deep proprietary insight into how these Threat Vector is actually developing evolve is where you really begin to identify things are going to be meaningful. Yeah,
that's great. Just to kind of pull on that. 400 cyber security companies got funded last year. Not sure how many were out there looking for funding but insecurity in particular it's very very hard to start of rise above the noise and it's very hard as a start-up to to show value quickly to to convince you to have dozens of security products already in the organization to then add another one thing I want to ask again and I'm just going to throw this channel as well which from the perspective most
creepy and when you answer this question, please kind of indication as to which stage you're talking about cuz it really does make a big difference. What are the what are the things that you are looking for when I steam comes to pitch you and you know, most of us have heard for five least companies to catch the same similar type of idea the same the same space. Generally, what are the types of things that make a company kind of Rise Above. Make you excited about doing an
investment and you know, some of the things I'm thinking of maybe might come up is horizontal kind of play looking kind of doing something that across all different kinds of Industries something that's interesting or are you more interested when there's a real targeted kind of opportunity there? How much does location matter? How much does a background of the team matter? So I guess it will start off with you again just to mix things up for you know, the question framed in terms of stage, you know, is that when we look at it again, did we start companies
their spot pedigree the team we draw principally out of government research Labs. These are subject matter expert they've been operating on the defensive side for a number of years. So they're we're going after subject matter expertise domain expertise. We understand that the idea of building a business has a new idea and and we understand that we're going to have to augment their domain expertise with company building experience. If if I jump out to the things that we Fund in in Silicon Valley, there's a well-established Spokane Valley play book about how to build a company what is not
as well established is deep domain expertise not to take too much away from the valley, but those government Labs. I always joke that you know government Innovation is an oxymoron unless you're talking about cybersecurity and data science. And then the labs are material ahead of Industry 557 years. I would say I which is why we tend to look for disruptive innovation coming out of those labs when you get out to the valley, there is a Playbook around holding companies. So we shift our bias little bit in terms of the questions were looking for and you know, there's going to be a
little bit more focused on pedigree the team because pedigree in cybersecurity for us is absolutely everything. You can't learn fast enough to be competitive in this space, you know, and that's one of things like a lot of entrepreneurs attracted to the market. Learn the hard way and frankly, they weren't up with capital from Venture investors. Learn those lessons the hard way as well. So we tend to look for domain expertise and what will look forward in and those companies is how fast can you get Traction in the marketplace if you have the domain expertise, you know, is this
going to be an educational sale that's going to take a year or what's the time to buy? Keeper short time to value in those more mature companies does is Dave talked about earlier? You know, you have your moment in time. There is a window of opportunity how fast can you get traction expand within that window of opportunity is essential to sort of your competitive Foster in the marketplace, you know location turns out to be pretty important for us today in a one of the themes early stage companies that everybody's virtual today. I don't buy. I'm an ex. CEO Bill to company makes it right now.
I think it's bullshit total bullshit moment on a conference call once a week or twice a week or every day proximity matters. You need to be around the table, you know, kicking around ideas. When that aha moment comes together that really is a spark of Genius that allows a start-up to establish tracks in the marketplace to begin to build. So we do look at location in a pretty significant way in terms of where is the team datatribe, you know our team If everybody has dispersed after the NSA and it's like you're all coming home. So you can build a company with
us. You're all moving back to Columbia, Maryland. And that's we're going to do it. You're not going to fold it in the same philosophy when we're out on the on the west coast. I think one of the real big challenges we look at is this is how big can the opportunity be again? You go back to the to the math has been talked about twice this morning Hunter 52 300 million dollar exits for the vast majority of cyber security company. If you ever get the high end of that range for hire, you better be doing something broadly horizontal. It doesn't mean it's things aren't important. They're very very
important, but they don't try Venture economics and Adventure best were looking for things that brought horizontal applicability for we have a higher probability of being behind to generate the returns of the system of things. We think about opportunity pedigree of the team need to be all in the same location. Agree or disagree with store-bought speaks the truth, right? I mean for me personally if I have a strong signal on the technology, I just fall in love
with I think it's going to go but but their technology Vision staying so not a product people really want it. It's kind of nice guys ladies whatever. You know, what we're going to do it. I like to see both the right team and we can work together and then for me personally, it's it's all about expectations right kind of checks with this team another one of those investors to the table. That's something we've been trying to specialize in and a lot of times based on the country or the people in the background you might take certain and Dustin's completely off the table because
they're Get out for things like that doctors in our calculation part that you spent a lot of time on an airplane and they don't want Investment Company unless it's like right away from the other offices. So we have that flexibility in and that product of approaching to resemble invest in cybersecurity in to completely ignore. This early stage dust just doesn't make sense a very frequently were looking at the fibre company in Israel from the east coast to Europe and then Silicon Valley as well and trying to invest
in the best and the brightest second point I would say is the things that we've done because we're such an early stage investors as we built out of the past 20 years a network of of cisos and cios, really c-level Executives across a hundred and twenty-five organizations globally. Council on a formal basis New York San Francisco, we have lunches every quarter a dinner, you know once a year in east coast and then informally a part of our investment due diligence process is really putting these prospected, you know companies in front of that CIO, you know
CSO Network. So it's it's especially if you're start up with an idea and you know, you're trying to access the market here in Silicon Valley or you know in the US market and we can put you in front of dozens of heads of it across in Atlanta that's proving to be in a fight differentiated and valuable and said earlier, and it really helped accelerate the cell cycle in the process of getting these companies out in front of that such an extent that are Caesar's he or she is happy to talk to you after the session. We continue to grow out that counseling at work and it's it's really
proven invaluable and it is an amazing at the price of the firm. So I went to the store to make a personal perspective and also from your perspective the DMV or you enter Congress and some other to talk to nobody where there's so much there's a lot of different views across seen it all has imprisoned to the process and it is a long and expensive process and I might go inside of that with some of those for the greater ideas. So something horizontal wise vs. Structural eyes changing the world is something I see a lot more of them personally
valuable has a more and more complexity to become successful some of the things that nobody mentions, you know location in geography. Personally for me. I don't agree with the geographical proximity is everyone having to be together by side as we grew we know we were almost done completely virtual company you got together every six months and we did okay in that regard. So it is important to have folks in hat Center of mass for people are located till
eternity in the catering and do the same and how do you know in person you touch with meeting quite a bit? There's there's a varying degree of things that are interesting and I need to cook for a dozen. Look at that when I was like a unified now, this is the only answer that if I do how do we do go in next week? Is whether or not you as a team have a distributed team and not all be in the same location together. If you're out there raising money. One thing
to consider is the fact that some investors think that's really important and it may affect your pedigree to feed critically important cuz you're better but there's always things are going to throw curveball to company in the teams that don't have a good understanding has a good chemistry is so critically important summer things real disagree are you know, things are to govee focused Leadership at 32 academically inclined my kind of personally I think you know the
hustle factor and people working in commercial markets in understanding since the business pretty darn important words some of the academic and govern Aries, maybe last some of that fire to get things done in the short time, but in terms of location to mention that 7 I think it was the best cyber security are in the Silicon Valley California and tell is based in the DC area. I'm in our California office. So we do have an office in Silicon Valley. It sounds like a few others have locations as well.
New York has not so far been a real locus of social cyber security companies or close closer proximity to Israel where there's a lot of companies being generated being founded and where is cyber talent coming from? Is it the DC area? Is it is it me or do you think that locus of is going to move from Silicon Valley to New York or DC? You know when you look at this is fundamentally about the people to buy my premise that takes expertise. Pacific Coast things
move so quickly you looking where the concentrations of time with her? And so, you know is real for a lot of obvious reasons Maryland for a lot of obvious reason, there are clusters that have developed in Atlanta. There are there's a cluster that's developed in Texas. There's a little bit going on in Pittsburgh around CMU virtually around a professor in the case of one particular individual and then you have Silicon Valley and so are our rule is looking less you still don't want the bad guys and walked away with their head. You don't know
you know, and so you start looking at where is that expertise and that expertise is concentrated in very specific geographies. And that's where the business grows up around. Then you start digging a little deeper, you know in terms of where is The Cutting Edge Innovation, you know, you have a lot of folks that have the pedigree that we look for in Silicon. But they are a little more on sort of the incremental, you know, incremental Innovation side of the equation we're interested in that as long as it's massively destructive. If you look for the really destructive thing as you get closer to
some of the labs were people have been doing research over an extended number of years that you can take advantage of as opposed to Norfolk encryption. Nobody is working on a science project for 20 years that's taking massive Investments and world-class mathematicians the crack the code that is not a venture financeable project from inception, you know, when it gets to the point where the map is proven and it works then it becomes Vester investable, you know, if the bat was coming out of government research program or end of IBM or a little bit of what the guys of
Microsoft When we raised our first a round with a million dollars when we were talking to people they said when you're like that government contractor, they had no idea that we were doing about you know, that's almost twice as much as at revenue and and that most of it was commercial and you know it soon if there's ever an investment opportunities at DC region. There's so many people have no idea how to go to market how to pitch a product or do anything like that neither basic investing things with
the talent that Bob talked about it's it's they're going to Big reasons. I left I'm going to go do in that area and they've got that opportunity. They need our help and I think as an investor if you're looking at, you should take a second. Look at that region three and a half times as many cyber security engineers in the state of Maryland in the state of Virginia than the rest of the u.s. Combined. Dismiss dismiss about Talent a little bit in the question
having a couple years living in New York for the last three years. I think the commonality of all of these companies is regardless of whether they're coming from Montreal or not, New Mexico or Utah or television or Berlin. They're all passing through New York girl passing through Silicon Valley because you know, where do I go to the bank? To me. It seems like clear at this point after a decade of back-and-forth New York. Is that hub for the East Coast Silicon Valley is that
is amazing. It's only those are the major hubs of innovation and that's where the VC's reside and as long as you know, folks need the dollars in the need to customers are always going to go there. So I don't really care if the technology is coming out of again Berlin or Hamburg or Toronto or Vancouver or through the market that we sit in those opportunities that we see now, I personally think there's Oyster Bar signal ratio in some of those regions. Qdoba
said was that a television I still think it's amazing being a New York because 80% of my portfolio passes through New York, you know every month or two and so we're touching those companies helping them get in front of Wall Street and kind of ecosystem or whatever might be so that's how I was almost to where they come from. But are they going to hop on a plane go to where the markets are and can they build an amazing? We don't care if your business Chicago. Can you grow more in Montreal? It would have
whatever the city is that, you know, wherever you want to build your company and if the answer is yes, and then great we don't really care what happened to get on a plane many of my colleagues, you know, we'll move that company or not fun that company. I get it, you know, it's just that's not how we roll as a permit. There's a little bit of hubris and arrogance, you know in the Bay Area like hey, you know everything the sun rises and sets here in Bay Area. There is amazing and I miss it. I love it. But
there's a lot of innovation going on in other places around the world and you know, we like to be receptive to that. It has an early-stage Venture Furman, But the point is I think we want to see those opportunities to really make an intelligent evaluation. It's okay. We believe, you know to the earlier Point like this is the right team. This is the right technology. This is the right market and in that company. One run around and do you say that they were
around a great story of go to market or push me to go to my Revenue. But yeah, yeah, so definitely, you know plenty of disagreement among people all investing in a safe space. Obviously. The sunset in California lead to serious is definitely not flat facts matter if you know anyone who wants to come and find us at the Please feel free to do so.
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