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By Clare O’Gara
Fri | Jul 24, 2020 | 9:53 AM PDT

When it comes to COVID-19 and cybersecurity, the name of the game is adaptation.

Pair a rapid shift to remote work with a free-falling economy, and the overall takeaway is a very mixed digital bag.

And new research into venture capital (VC) investment and cybersecurity makes this reality clearer.

How coronavirus is impacting cybersecurity investment

In the beginning, no industry was safe.

As COVID-19 spread rapidly and the world jumped into action, nearly every organization struggled with the economic fallout.

VC was one of these many arenas, and even the cybersecurity startup sector faced challenges: early-stage investment dropped by more than 37% in the first half of 2020.

Datatribe notes this data in a recent report, "A Look at the First Half of 2020: Early Venture Activity is Down, but Remains Active."

"The Q2 close marks the largest year-over-year deal volume decline since 2002, with U.S. Early Stage investment across all verticals, Technology2, and Cybersecurity down 19.2%, 45.8%, and 37.7%, respectively. Other verticals relevant to the pandemic, including E-commerce and Digital Health, are also down by historic margins (29.4% and 22.9%, respectively).

This is neither unexpected nor irrational. Millions of Americans were losing their jobs and face-to-face meetings, a cornerstone of early venture due diligence, came to a screeching halt. In the early days of the pandemic, investors hit pause on new opportunities to instead focus on shoring up existing portfolio companies while waiting for some stability to return to the business environment."

Amid the fallout, however, adaptation is beginning to take shape.

"New early stage cyber deals are down, but cyber continues to gain as a percentage of the early stage Technology, Media, and Telecom investing landscape. 

By the end of the second quarter, cybersecurity deals reached a historic high of 14.9% of technology deals (by deal volume). Continued growth of digital technology adoption, perpetual offensive cyber operations by nation states, and a newly distributed workforce all contribute to the growing demand for cybersecurity technology."

In the early stages of the COVID-19 pandemic, much of the emphasis remained on "someday returning to normal" or "waiting until normalcy."

But according to Datatribe, waiting for normal is no longer viable.

"Early venture investors, seed in particular, need to figure out how to find, evaluate, and execute deals in the COVID world, one where co-location and business travel is the exception rather than the rule. We anticipate that early stage venture investors will shift the face-to-face meeting(s) later in the due diligence process.

As well, we'll likely see an increase in the number of pre-deal meetings—as many as necessary to build the trust and rapport required of a long-term business relationship. However, we do not expect a shift to localization—this is a good time to invest and investors are willing to expand their geography for the right opportunity."