AGC's Insights: Cybersecurity Q4 2024 Market Update

Although organizations increasingly use AI to detect and prevent cyber threats in real time, cyber criminals use weaponized AI tools to create deepfakes, copy user access passwords, and other fraudulent tactics to bypass security measures. With the increasing digitization of strategic assets, cyber investment in AI is needed just to keep pace with numerous, and well-funded, adversaries. With AI-assisted coding now table stakes for all software development, 44% of security professionals are apprehensive about the risks introduced by this AI-generated code, which exceeds even the 38% listing AI-powered attacks as the top cloud security concern.

While VC funding for cybersecurity startups, especially those utilizing AI/ML, is tracking to $12B+ for 2024 – the highest level to date excluding the 7 "COVID-bubble" quarters – the funding landscape reveals a market of haves and have-nots. Notable late-stage successes are driving robust headline numbers. However, many early-stage startups face significant challenges securing Series A or B funding, highlighting a divided market where proven performance attracts investment, but early-stage companies struggle to gain investment traction.

Though activity slowed in 2023 along with the broader tech market, Cybersecurity M&A volume remains above pre-Covid levels, and 2024 has seen an uptick in activity, with deal volume and value projected to rise by 23% and 24% YoY, respectively. Smaller tuck-in deals comprise the majority of deal volume, while deal value is driven by a handful of massive deals from H1 including Thoma Bravo's $5B take-private of Darktrace and Cohesity's $3B carve-out of Veritas' Data Protection Business.

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