The cybersecurity landscape has undergone a dramatic transformation over the past few years, influenced by shifting threat vectors, technological advances, and changing market dynamics. For venture capital firms like Evolution Equity Partners, navigating these complexities is more crucial than ever. I recently had the opportunity to explore these topics with Richard Seewald, the Founder and Managing Partner at Evolution Equity Partners, a VC firm that has been successfully investing in cybersecurity companies for the last 25 years.
Big Picture Shifts in Valuations and Investments
Richard outlines how Evolution Equity Partners has been investing throughout all stages of the business cycle, including critical moments like the post-9/11 era, the 2008 financial crisis, and the post-COVID-19 scenario. These times were marked by significant shifts in investor confidence, interest rates, economic growth, and supply-demand imbalances. However, the opportunities and growth drivers around cybersecurity have remained persistent.
Seewald recalls that in the year 2000, the overall total addressable market for cybersecurity was around $5 billion. After the 2008 crisis, it rocketed to $50 billion. “We are on target to be at $250 billion as we reach the middle part of this decade,” he adds. To put it in perspective, a McKinsey report suggests that cybersecurity could be a $2 trillion market by the end of the decade. “It’s exactly at this point in the cycle that best-of-breed cybersecurity companies are built that are addressing next-generation attacks,” Richard emphasized.
When we look at recent history, we see that the emergence of companies like Crowdstrike, Okta, and Palo Alto Networks coincided with economic downturns, aligning with Seewald’s observations and confirming that periods of economic instability often act as a catalyst for innovation in the cybersecurity space.
Investment Opportunities in Cybersecurity Segments
When asked about the most attractive investment segments within cybersecurity, Richard took us through the firm’s experience in Machine Learning (ML) and Artificial Intelligence (AI). Evolution Equity made its first AI/ML investment in a company called Cognitive Security back in 2012, which later got acquired by Cisco. Richard further observes that machine learning and AI have evolved from just detection to response capabilities.
“One of the areas that we think is particularly compelling in the machine learning space today is protecting the developer environment,” Richard notes. In this context, he mentions an investment in Protect AI, helping organizations deliver secure and compliant ML models and AI applications. The focus is on protecting the AI and ML algorithms, applications, and models as the vulnerability and attack surface to hackers has significantly increased. This is a particularly salient observation as ML and AI are now being deployed across all major industry sectors including healthcare, finance, and more.
Adding Value Beyond Capital: The Evolution Equity Approach
Evolution Equity Partners’ investment philosophy extends beyond capital infusion. Richard cited the example of AVG Technologies, a company where the team at Evolution Equity Partners was instrumental in growing revenue from $4 million to almost $400 million within a decade.
“The playbook that we developed over the last two decades in helping growth-stage businesses in the cybersecurity space has now become institutionalized,” says Richard. He mentions that the firm operates centers of excellence around cybersecurity growth, staffed by professionals who have been integral in building cybersecurity businesses over the last two decades. This involves specialized know-how in product-led growth, operating metrics, and focusing on ROI-driven growth versus “growth at all costs”.
The Shifting Geographical Dynamics
Seewald dives into a fascinating aspect of cybersecurity investments—the geographical dimension. Contrary to popular belief, the cybersecurity investment world isn’t as U.S.-centric as one might think. While 80–90% of cybersecurity companies are U.S.-based, followed by Israel and the U.K., Seewald believes that Europe presents a burgeoning opportunity for cybersecurity startups. “We’ve been one of the most active investors in European cybersecurity over the last decade,” he says, noting investments or acquisitions in almost every major European country.
European cybersecurity companies often set up their headquarters in the U.K. due to an ecosystem that facilitates opportunities for them across Europe, similar to how U.S. cyber ecosystems are concentrated on the East and West Coasts. Companies from countries with significant defense budgets, such as the UK France and Germany, are creating exciting opportunities in the cybersecurity space.
“I am positive we are going to see a billion-dollar machine learning and AI company based on revenue, not just valuation, come out of Europe in the cybersecurity space over the next couple of years,” Seewald predicts. “The quality of universities in Europe is fostering an environment ripe for this sort of innovation.”
Israel, according to Seewald, holds a special place in the global cybersecurity landscape. “Israel is just a unique ecosystem in part because of the flywheel that exists around the cybersecurity entities in the country that produce talent that is well connected, experienced, and technically savvy,” he explains. Evolution Equity Partners has been a key investor in Israel, with recent investments in cybersecurity startups in Tel Aviv.
The Future Outlook
Seewald emphasizes that now is the opportune moment to invest in cybersecurity. “Companies that are born today will be the champions of tomorrow,” he asserts. For instance, during the 2008 financial crisis, companies like CrowdStrike were born, which later turned into market leaders. Seewald encourages cybersecurity entrepreneurs not to be disheartened by current economic fluctuations or contraction in the market. “This is an area that’s mission-critical to our world today. It’s our infrastructure, our companies, our governments that need protection. It’s our way of life,” he says, underlining the sector’s critical importance. “We’re pretty positive about the opportunity in this category over the next couple of years,” Richard asserts.
As we wrapped up our discussion, it was evident that the evolving cybersecurity landscape presents both challenges and opportunities. Evolution Equity Partners, with its depth of experience, is well-positioned to capitalize on these opportunities, steering cybersecurity companies through market cycles to become next-generation cybersecurity leaders.
As the demand for cybersecurity solutions continues to grow—driven by an expanding attack surface, regulatory mandates and an evolving threat landscape—now is an attractive moment for investors to engage deeply with this critical and expanding market. This isn’t merely about hedging against risks or short-term gains; it’s about contributing to building a safer, more secure digital world and protecting our way of life for decades to come.
Venture firms like Evolution Equity Partners serve as key pillars in the cybersecurity ecosystem, enabling innovation, fostering growth, and facilitating market adaptation. Their experiences and strategies offer crucial insights into how the investment community views cybersecurity — as a dynamic, high-growth sector with tremendous potential, not just now, but in the decades to come.
And for those looking to start the next cybersecurity success story: “Don’t be discouraged by any of the headline reports,” Seewald advises, “The right time to be building a cybersecurity company is now.”
Learn more about Evolution Equity Partners here: https://evolutionequity.com/
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