Cybersecurity has been facing challenges recently, seeing a significant 40% drop in investments compared to the previous year. However, amidst these struggles, there are promising signs of a potential recovery.
The cybersecurity-focused VC firm NightDragon reported that a majority of chief information security officers are seeing increased budgets for 2024. Furthermore, despite an overall decrease in Q1 2024, the number of deals in the industry has actually increased compared to the first quarter of 2023, according to recruitment company Pinpoint.
In light of this, Evolution Equity Partners, a growth capital investment firm headquartered in New York City, has launched a new $1.1 billion cybersecurity and AI fund on Tuesday. This marks the third cybersecurity fund in Evolution’s history.
The fund, known as Evolution Technology Fund III, was oversubscribed and saw participation from existing and new endowments, sovereign investors, insurance companies, foundations, fund of funds, family offices, and angels. The fund will focus on investing in cybersecurity companies and startups that utilize machine learning and AI to create leading platforms. Richard Seewald, managing partner at Evolution and one of the firm’s founders, told TechCrunch that the fund will make investments ranging from $20 million to $150 million.
“The Evolution Technology Fund III has already invested in fifteen top cybersecurity companies, starting its investment period over a year ago,” Seewald shared. “We anticipate investing in a portfolio of up to thirty companies through this fund. Our goal is to work closely with management teams and founders, providing support and guidance in areas such as sales and marketing, product technology, human capital, M&A, and business development to help them excel.”
With Evolution Technology Fund III, the firm’s strategy is to allocate around 75% of the total budget to early-growth-stage companies, with another 15% reserved for later-growth-stage startups, and the remaining 10% for earlier-stage VC tranches. The fund will not only invest in North America but also in Europe and Israel, which is considered a hotspot for security technology.
“Our approach is to invest in a diversified portfolio across various stages of maturity,” Seewald explained. “We believe this provides private markets investors with a diverse exposure to cybersecurity opportunities.”
Evaluating environmental, social, and governance (ESG) factors will also play a role in Evolution’s decision-making process, according to Seewald.
“Evolution is dedicated to integrating relevant ESG criteria into our investment processes and ownership practices,” he affirmed. “We actively engage with our portfolio companies to promote diverse boards and leadership teams, which bring varied perspectives to the decision-making process and reduce the risk of groupthink while enhancing accountability.”
These commitments will certainly be monitored closely.
Founded in 2008, Evolution has offices in Palo Alto, London, and Zurich, in addition to New York City. The firm was co-founded by Seewald and Dennis Smith, who had previously worked together at cybersecurity giant AVG (now owned by Avast). J.R. Smith and Karel Obluk, former CEO and chief scientist at AVG respectively, joined forces with Seewald and Smith to establish Evolution following AVG’s public offering.
The 30-person team at Evolution manages approximately $2 billion in assets and has invested in 60 companies thus far. Their prior fund was valued at $400 million. Some notable successful investments by the firm include Arctic Wolf, which is preparing for an IPO, Talon Cyber, reportedly in talks for an M&A deal with Palo Alto Networks, Snyk, Aqua Security, SecurityScorecard, and Carbon Black.
