Cybersecurity Startups Have a Lot to Prove

Startups developing security software have largely tracked with the rest of the enterprise software startup field this year when it comes to funding and valuations—up and to the right—even as prices for publicly traded software companies fell a little closer to Earth. Venture capitalists poured a record $25 billion or so into cybersecurity firms, up from around $11 billion last year, according to data from PitchBook. Their bullishness is understandable, given the persistence of ransomware and other cyberattacks, which have boosted spending on security software.

But the prices investors are paying aren’t cheap. One case in point is Lacework, which focuses on security software for companies running apps and other infrastructure via Amazon Web Services and other cloud providers. Last month the company announced a $1.3 billion funding round in which investors valued the company at $7 billion before the deal. Based on Kevin’s story about Lacework today, those investors—including Sutter Hill Ventures, which incubated the company, and new investors such as Franklin Templeton—paid around 150 times the company’s annual recurring revenue. (The story of Lacework is also remarkable for the fact that six people have already held the title of CEO during its six-year life.)