By Robert R. Ackerman Jr.
If you want to get a sense of the size and significance of the U.S. cybersecurity ecosystem in one location, a must-visit is the National Business Park at Fort Meade in Maryland. It is highly impressive and may someday serve as a stellar example of an effective new way to participate in the startup ecosystem and its venture capital brethren.
Fort Meade has been transformed from an Army base into a sprawling cyber city. Thirteen years ago, the young park had 10 buildings. Today, the square footage of the 28-building complex is roughly half the size of the Pentagon, and it is completely full. Tenants include the National Security Agency, the U.S. Cyber Command, the Defense Information Systems Agency and the cybersecurity businesses of Boeing and General Dynamics, among others.
This represents a snapshot of the breadth of the U.S. cybersecurity industry today, albeit only one relatively small piece because the private sector has come to dwarf the size of the government sector. In 2004, the global cybersecurity market was $3.5 billion. This year, it’s expected to exceed $122 billion, according to Research and Markets, which also projects that it will exceed $202 billion by 2021. Cybersecurity has become by far the fastest-growing sector of information technology.
The venture capital ecosystem has responded accordingly and, along the way, has had to develop its own cyber experts internally to separate the wheat from the chaff among cybersecurity startups – a world immersed in the domain of deep science and advanced engineering and one in which expertise is essential. VCs also have to approach potential cybersecurity startup investments gingerly because too many “me-too” companies are being funded by a venture community eager to participate in one of the hottest sectors of IT innovation.
Nonetheless, the cybersecurity investment picture remains very bright. Last year, VCs invested $3.8 billion in 324 cyber startups, nearly double the total in 2012, according to CB Insights. Last year, five of the nine private cybersecurity unicorns reached their required $1 billion valuations. This year, while cooling a bit, cybersecurity VC funding remains vibrant. As the founder of Allegis Capital, a Silicon Valley early-stage cybersecurity venture firm, it’s no surprise that I enjoy the proliferation of cyber startups in the Valley. At the same time, the cyber expertise around Fort Meade has always been impressive and so I’ve invested in Maryland-based cyber startups over the years. To put things in context, Maryland has more than three times as many cyber engineers as the rest of the country combined, and many work at the cutting edge, out of the necessity that comes with national defense imperatives.
Despite this wealth of engineering and technical expertise, start-up success in the Washington D.C. Beltway has faced a series of obstacles. No startup succeeds solely on the strength of its technological prowess. Also essential to success is entrepreneurial experience, startup “know how” and a broad cross section of commercial skills, contacts and customer and partner relationships. In other words, the cyber community around the Washington Beltway has needed a mini Silicon Valley ecosystem and the Silicon Valley “playbook”.
That’s why DataTribe was created—to merge the cyber security innovation of Maryland with the startup building expertise and resources of Silicon Valley. DataTribe is a cybersecurity startup platform – a crucible in which to forge start-ups – co-based in Fulton, Md., and Silicon Valley – and one dedicated to leveraging the expertise created from working with the most advanced information technologies forged by the NSA and related institutions, as well as national laboratories.
DataTribe focuses on those areas of innovation in which government labs, out of necessity, have been innovating in cybersecurity, data and analytics well in advance of the commercial market. DataTribe’s business model is unique, partly because it is an operating company, not a venture firm, although it can provide startups with up to $1.5 million in seed capital (with follow-on participation in subsequent rounds). It’s also unique in that DataTribe itself creates the concept for each startup and co-founds each company with a team of technologists with deep, relevant technical expertise and experience. These are teams that have “been there and done that” in production environments. Supporting these efforts on a daily basis is an operating team of highly experienced, dedicated executives with decades of successful start-up experience in Silicon Valley and Boston.
DataTribe will co-found and launch three start-ups a year. The first three startups came on board in this inaugural year and are already gaining market traction…
Dragos — recently named one of Cybersecurity Ventures “Cybersecurity 500” top companies — was the first of the startups. It specializes in network mapping, detection and remediation of cybersecurity problems in industrial control systems. The second, Enveil, is developing the first commercial solution for end-to-end lifecycle encryption; including data-in-use (homomorphic encryption based Cloud Security). The third company, Kesala, is developing lightweight solutions for low cost and ad-hoc, secure virtual private networks as well as cloud-based security monitoring of large-scale traffic.
The cybersecurity market is large, rapidly growing and driven by non-stop innovation. It is enormously complex at every level – within its individual components, in its connection to complex networks and in its relationship to data in all its forms and flows. You simply can’t learn fast enough from a standing start.
DataTribe is bringing the Silicon Valley playbook to the nation’s center of innovation excellence in cyber-related domains to forge a new generation of cyber security startups. In time and with success, we expect to see the emergence of a self-sustaining cybersecurity startup ecosystem, fueled by an unusually deep reservoir of relevant U.S. technical talent. In a broader sense, this is how Silicon Valley started, and there is no reason why a smaller, more concentrated version can’t take root on the other side of the country.
Robert R. Ackerman Jr. is founder and managing director of Allegis Capital, a Palo Alto, Calif.-based early stage venture capital firm specializing in cybersecurity. Ackerman is a co-founder of DataTribe and Allegis Capital is a strategic partner.
The Corporate Venture Connection 