The investment community at Black Hat say they are not gun-shy about new investments while the U.S. and global economies face a downturn.
“We’re always looking,” Bob Ackerman, founder and managing director of AllegisCyber Capital, told SC Media.
Ackerman and Dave DeWalt, founder and managing director of NightDragon, both said they attended the conference actively looking for new investments.
There are several market factors, some related to the economy, that they say produce opportunities for investment. DeWalt noted that the active conflict in Ukraine and impending conflict in Taiwan both created new need for information security products and services that could hold up to potential cyberwarfare, including information warfare. Ackerman noted that security not only had a moat around it during a downturn but that the downturn may increase the need for security.
“It’s not like when there's a recession, the adversaries take a vacation and pick the game up later. No, they double down. And what you find in down economies, actually the adversaries get much more aggressive, with the psychology that security staff may have taken cuts,” said Ackerman.
This is Ackerman’s third economic cratering during his time investing in cyber. He sees a similar cycle of pressure being placed on capitalized companies as the last two. Valuations are no longer based on infinite capital. Investors place pressure on late-stage companies to emphasize profitability over growth, and slowly apply that pressure to earlier and earlier-stage companies. Over the long haul of a recession, investors will build up unused capital that they will eventually want to put to use, likely by shifting to earlier-stage companies.
DeWalt said that the market reset restored some of the natural order to company expectations.
“When I ran companies, they managed me on three layers: top-line growth, bottom-line and cash-flow - can you double digit grow top, bottom and cashflow? You do that on a consistent basis, you get rewarded for that. In the last couple of years, you're only really rewarded for one, which was top-line growth. And so we see a little bit of return to normalcy on that front,” he said.
DeWalt called that change “comforting.”
Ackerman said the recent boom in mergers and acquisitions would likely continue as a bloated marketplace forced contraction, and highly specialized vendors found a more natural fit as components of larger platforms.
“That's just companies realizing they are not viable on a standalone basis. They find out that they are a feature or they are a product,” he said.