Cybersecurity Exits: M&As Surpass IPOs as Valuations Soar
June 11, 2019 | Blog

Cybersecurity Exits: M&As Surpass IPOs as Valuations Soar

This week, unicorn company CrowdStrike is expected to make its public market debut on the NASDAQ in what is expected to be the biggest cybersecurity IPO in at least a decade. This IPO comes in the midst of a blockbuster year for unicorn IPOs in terms of proceeds, with more anticipated to come. However, we thought it would be useful to take a narrower view of the cybersecurity industry, given its strong private capital investment to date and how exits in this sector have played out recently.

In our Cybersecurity Report published last year, we posited that exits in the field would likely continue to arrive predominantly via M&A activity, despite notable IPOs including ZScaler, Carbon Black, and Tenable in 2018. This hypothesis was largely generated by the expectation that existing trends would remain consistent. Between 2015 and August 2018, M&A deals accounted for more than 95 percent of yearly cybersecurity exits, and it is apparent that pace has persisted. Since August 2018, we have tracked nineteen formerly VC-backed cybersecurity M&As, with notable targets including Duo Security, AlienVault, and Cylance. Meanwhile, CrowdStrike’s debut will be only the second public offering this year after Tufin (NYS: TUFN), which completed its $105 million IPO in April.

Target Acquirer Date Deal Size
Duo Security Cisco Systems 9/28/2018 $2,350 M
AlienVault AT&T 8/22/2018 $1,600 M
Cylance Blackberry 2/21/2019 $1,500 M
Demisto Palo Alto Networks 3/28/2019 $560 M
Source: SharesPost Research, Pitchbook

With ever-increasing security risks and a growing number of solutions to address them, deep-pocketed corporations are evidently eager to acquire private companies that serve to accelerate existing solutions or assist in their creation. These firms have also demonstrated a willingness to pay steep premiums when necessary – Cisco paid over two times Duo Security’s last private funding round to acquire the company. In fact, up-round exits have been the norm for cybersecurity companies over the last ten months: eight of the nine acquisitions with disclosed purchase prices saw increased valuations over their last private funding round. At the midpoint of CrowdStrike’s most recently disclosed pricing range, Wednesday’s IPO will value the company 73 percent above its last private funding round. The round-by-round valuation for the three largest acquisitions since August are shown below, along with CrowdStrike. Based on the trend in implied valuations, it appears public and private investors, along with corporations, see significant growth potential in these cybersecurity companies.

Valuation by Round Through Exit (in billions)

The above discussion focuses on success stories – those companies that navigated the venture capital ecosystem through to an exit. In an increasingly crowded landscape, we’ve identified a number of still-private companies that have differentiated themselves from the pack. As younger and less developed firms in some instances, these companies inherently represent higher-risk investment opportunities. Still, given their growth to date and earlier life stage, they could present attractive investment opportunities for late-stage investors. The list includes both existing unicorns and soon-icorns (companies near the unicorn threshold), as well as younger companies that have experienced impressive growth in their short periods of operation. We’ll be eagerly following these firms as they move forward in a market expected to eclipse $300 billion by 2024.

Company Name Year Founded Total Raised Last Known Valuation
Tanium 2007 $682 $6,700
Illumio 2013 $333 $1,665
Lookout 2004 $331 $1,661
Darktrace 2013 $234 $1,610
Netskope 2012 $404 $1,393
Auth0 2013 $213 $1,160
Pindrop 2011 $223 $900
Exabeam 2013 $193 $820
ForgeRock 2009 $150 $647
Malwarebytes 2008 $80 $625
Cybereason 2012 $190 $625
IronNet Cybersecurity 2014 $78 $578
Shape Security 2011 $132 $499
BlueVoyant 2017 $208 $430

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CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.