VC funding for cybersecurity startups fell to nearly $2.7B in Q1 2023, down 58% YoY from $6.5B in Q1 2022; the number of announced deals dropped 45% YoY to 149
which saw less than $10 billion go to cyber startups — in total dollars raised. https://news.crunchbase.com/ ... @crunchbasenews : Although venture funding struggled mightily in the first quarter, funding to cybersecurity startups specifically remained relatively even quarter to quarter — although well below the highs of the past few years. https://news.crunchbase.com/ ... https://twitter.com/... Tim Crawford / @tcrawford : While on the macro level cyber funding has dropped, important to look a bit deeper to the drivers and where the market goes from here. Cybersecurity Funding Drops 58% From Q1 2022 #cybersecurity #CIO #CISO https://news.crunchbase.com/ ... https://twitter.com/...
Context & Ripple Effects
The slide was underway before this quarter: cybersecurity funding had already fallen nearly 40% sequentially in Q2 2022, dropping faster than overall global VC. The Q1 2023 print — $2.7B across just 149 deals — confirms the correction deepened into its third consecutive down quarter rather than stabilizing.
First-order effects
- Cybersecurity founders raising in early 2023 face both halves of the squeeze Crunchbase counts: dollars down 58% YoY from $6.5B to $2.7B, and announced deals down 45% to 149 — meaning fewer term sheets and smaller checks per company.
- Investors who priced cyber deals off the $6.5B Q1 2022 market are now underwriting against a run-rate that the full-year 2023 total of $8.2B would later confirm as the sector's weakest since 2018.
Second-order effects
- With deal volume compressed this sharply, capital concentrates in the few companies still fundable — the pattern visible later in 2023, when only five deals topped $75M in Q3 — pushing unfunded startups toward revenue-based survival or exit rather than another priced round.
- Enterprise security buyers gain leverage as vendor pipelines thin: startups that can't raise compete harder for contracts, while incumbents face less venture-backed competition attacking their installed base.
Third-order effects
- If the cycle holds the shape the data later traced — trough through 2023, then a rebound to $4.4B in Q2 2024, up 144% YoY — cyber VC proves cyclical rather than structurally broken, but resets at a higher bar: post-2023 rounds reward proven security outcomes over category land-grabs.
- A sector that once absorbed $16.3B in a single year consolidating around fewer, larger-funded players points toward an industry where distribution and incumbency matter more than startup count.
The trend: Venture funding for cybersecurity is cycling through a full boom-bust-reset arc — peaking above $16B annually, bottoming near 2018 lows in 2023, and recovering selectively in 2024.