MENLO PARK, Calif.--(BUSINESS WIRE)--Bessemer Venture Partners (BVP) today released the BVP Cyber Index, which shows the public IT security sector outperforming the stock market by more than 2X over the last 4 to 5 years. According to the index, the sector outperformed the market by roughly 5X in each month following news reports of seven major breaches.
The BVP Cyber Index tracks the capital-weighted performance since January 2011 of 29 public companies whose principal business is IT security. Nearly half the companies are valued at over a billion dollars, including three BVP-funded companies: VeriSign, LifeLock and Qualys.
According to the BVP Cyber Index, the IT security sector diverged from the market three and a half years ago, and has since posted more than twice the gains of the NASDAQ and S&P indices (but right on par with the BVP Cloud Index, which is Bessemer’s measure of the cloud computing sector). The largest absolute gains in price per share came from Palo Alto Networks, VeriSign, Check Point Software, Proofpoint, and Imperva.
“It has become painfully clear to the market that businesses, governments, and critical infrastructure are under-spending on cyber defense,” noted BVP Partner David Cowan, who heads up the firm’s cyber practice and authored Security for Startups. “With IT security budgets approaching 10% annual growth rates, the market is projected to double over the coming five years, reaching nearly $200 billion in sales.”
Data Breaches Drive Performance
The BVP Cyber Index reveals intense periods of out-performance in the weeks following news reports of major breaches. “Every one of these attacks is a wakeup call that existing defenses simply cannot withstand nation-state capabilities,” observed Nathaniel Fick, CEO of Endgame. “Industry and government need to expand their focus from common malware intrusions to the much more devastating targeted attacks by sophisticated, patient, human adversaries.”
The accompanying chart reflects changes in the BVP Cyber, NASDAQ, and S&P indices in the month following public knowledge of seven large, known data breaches.
Startups Drive Innovation
Despite their stellar stock performance, publicly listed IT security companies cannot innovate fast enough to keep up with cyber adversaries, according to Dr. Ray Johnson, an Executive-in-Residence at BVP, and recently the Chief Technology Officer of Lockheed Martin. “Mature cybersecurity products are by definition obsolete,” noted Dr. Johnson. “If the large incumbents hope to keep up, they must accelerate the pace at which they acquire and integrate advanced technology from startups.”
Over the past five years, venture investment in IT security has tripled, funding four new cyber startups every week. “Thousands of amazing developers are flooding into cyber ventures, but most of these startups fail to deliver a differentiated message,” said BVP Vice President Sunil James, who led product and engineering teams at Google, Amazon Web Services, Mandiant, Arbor Networks, and iDefense. “We’re looking for the rare breed of scalable developers who can combine their cyber operational backgrounds with scalable cloud-based resources to build products that detect and prevent targeted attacks on IT and industrial control networks with stealth and zero false positives.”
About BVP
Bessemer Venture Partners invests in early-stage and hyper-growth startups, partnering closely with entrepreneurs to build durable businesses. BVP is a global firm with offices in Menlo Park, San Francisco, Cambridge, New York, Bangalore and Herzliya. With $4 billion under management, BVP invests anywhere from $100,000 to $75 million in innovative companies like Pinterest, Twilio, Box, LinkedIn, Shopify, Yelp, Skype and CornerstoneOnDemand. Over 100 BVP companies have gone public - in the last three years alone, BVP has had 46 exits (IPO and M&A) and made new investments in more than 85 companies. Learn more at www.bvp.com and follow us on Twitter @BessemerVP.
Since 1993, BVP has funded 36 early-stage cybersecurity companies; eight of them went public, and seventeen others were acquired by public companies (including iSight Partners and Internet Identity in Q1). BVP’s current cyber portfolio includes Endgame, Cloudlock, Wandera, Distil Networks, Auth0, Dashlane, K2 Intelligence, Virtru, ThreatTrack Security, and illusive networks.
