Sequoia Capital has the reputation of being on the cutting edge of venture investing. It makes a lot of smart bets, from household-name examples like Google and LinkedIn, to lesser-known darlings like Stripe, Y Combinator and Instagram. The firm has a reputation for picking winners and not being afraid to double down in a market as it matures (see Yahoo! and Google).
So while on the one hand, it might be surprising to see Sequoia place a big bet in a relatively mature industry like information security, it actually makes a lot of sense: As the world becomes more digital and social, and technology continues to infiltrate our every-day lives, information becomes an even bigger target for hackers and identity thieves.
Maybe that's why almost two decades after Schwartz MSL began working with its first security clients, like Security Dynamics (which became RSA and then was acquired by EMC), Axent (acquired by Symantec) and dozens of others, VCs still love security companies as outlined by this NY Times piece (which includes Schwartz MSL clients Bit9 and Solera Networks). Even during the dotcom crash, security companies were in good shape because of emerging financial services regulations, high-profile worms and viruses like Nimda and Code Red, and database breaches that forced companies to spend even in the tightest of times.
Today, the VC community's interest in security companies is as easy as A-P-T (advanced persistant threats). With new technologies and platforms evolving each year, large security companies have to innovate to face new threats, and nimble start-ups often beat them to the punch. Security must innovate at the pace of Apple and Samsung who, when they are not in court battling over IP issues, seemingly introduce new and more powerful smart phone and tablets on a weekly basis.
Security rarely delivers the booming IPOs of social and mobile, but it also rarely sees a company go public that doesn't have good business fundamentals and a revenue model that works. The industry may not deliver a lot of investment home runs, but it certainly has its share of singles and doubles, which are important for VCs to show a good batting average when they go out and raise their next fund.
Twenty years later and security is still a hot spot for VCs. Here's guessing it still will be in another 20 years.
Posted by Jason Morris on August 7, 2012 at 11:49 AM