Report: $5.3B was invested in cybersecurity companies in 2018, up 81% from 2016, with California alone accounting for 46% of VC investments worldwide
2018 wasn't all bad. It turned out to be a record year for venture capital firms investing in cybersecurity companies.
Context & Ripple Effects
This report lands mid-arc in a funding run the related coverage tracks end to end: after VCs put $3.7B into 272 security startups in 2015 and dipped to $3.1B across a record 279 deals in 2016, 2018's $5.3B marks an 81% jump from that trough — deal counts flattening while check sizes grow.
The geography is the sharper signal: California alone absorbs 46% of worldwide cybersecurity VC, meaning nearly half the category's global capital flows through one state's ecosystem — a concentration the later coverage extends, with global funding reaching $8.1B by 2020 before the exit wave.
First-order effects
- California-based security founders gain privileged access to roughly half the world's cybersecurity venture dollars, while founders elsewhere compete for the remaining 54%.
- Security startups raising in 2018 do so into a market where capital per company is rising even as the 2016 data showed deal counts plateauing — pricing power shifts toward sellers of equity.
Second-order effects
- VCs outside California face a forced choice: pay up for Bay Area deals or chase less-contested geographies at lower valuations, spreading the category beyond its historic center.
- A larger funded cohort sets up the downstream consolidation the corpus later records — 129 VC-backed security acquisitions in 2021, as strategics buy what VCs built.
Third-order effects
- If the pattern holds — funding climbing from $3.1B in 2016 to $5.3B in 2018 to $8.1B in 2020 — cybersecurity hardens into a permanent top-tier VC allocation rather than a cyclical theme, with exit volume scaling alongside it.
- Sustained single-state dominance of category capital entrenches a self-reinforcing cluster: talent, buyers, and follow-on investors concentrate where the checks already are, raising the bar for security hubs elsewhere.
The trend: Cybersecurity venture funding is compounding year over year while concentrating geographically, converting security from a episodic theme into a structurally over-funded category whose exit wave follows its funding wave.