Welcome back to our series on the 6 Startup Sectors That Will Dominate 2020 (And Beyond).
The next industry on our list is one of the most technical. It takes a great deal of effort and knowledge to penetrate through this space.
That being said, it could generate more winning startups than the rest of the other six sectors combined.
That’s because companies in this field are addressing a need, not a want.
And the need for new solutions and services in this sector is increasing every day.
Whether you know it or not, nearly every facet of your life is touched by these startups. And, if you are part of a larger organization, it’s probably even more important to your employer.
Best of all, startups in this sector are going to be gobbled up by any of the giant tech companies out there, meaning huge paydays for their investors.
So what’s the sixth and final hotspot for winning startups in our 6 Startup Sectors series?
One, that as an angel investor, give you the windfall of a lifetime?
Sector 6 – Cybersecurity
The world is an amazing place. But, let’s be honest, it can be pretty scary, too.
The internet now occupies nearly every area of our lives, from our personal finances to our holiday shopping, to the functions of the U.S. Government (yikes).
And while it’s making a lot of things faster and more convenient, it’s also making us vulnerable. That means that cybersecurity has never been more important.
Most Chief Information Officers now see cybersecurity as a top priority within their business’ infrastructures. Perhaps the greatest cyber threats today are those coming our way from Russia, China, and Eastern Europe.
In both China and Russia, hackers targeting the U.S., its interests, citizens, and allies find safe haven. In many cases, they are state-sponsored. In others, they are simply given free rein. Ultra-successful hackers in Russia live in mansions, own yachts, and parade tigers and cheetahs around on gold leashes… all paid for with stolen American dollars.
Perhaps the only reason that cybercrimes are not more rampant in the U.S. is because we enjoy technological superiority… But that could be changing. In a recent survey of CEOs, 50% believe that the U.S. will continue to lead the way in the tech industry. But a growing 39% are betting that China will grow to become the world’s top tech innovation by the year 2028.
Just since the year 2013, nearly 4 billion private records have been attacked and lost. While the thought of being hacked still incites a creepy feeling of being violated, no one’s really fazed anymore. It’s become a case of “when,” not “if.”
Perhaps one of the most significant breaches of the 21st century was the one that tore down the empire of Yahoo.
Back in 2014, the company that was once one of the biggest internet giants fell victim to the largest data breach in history. As a result of the cyberattack, 3 billion Yahoo user accounts were impacted, affecting some 500 million users, their passwords and personal information made public knowledge.
But because of Yahoo’s failure to respond quickly and effectively, their previous $100 billion valuation was stunningly hacked down to a modest $4.8 billion. They have never recovered.
Yahoo is just one of many companies that have experienced major losses due to cyberattacks. Target, eBay, Marriott International, Adobe, JP Morgan Chase, and Anthem have all fallen prey to online hackers.
The reality is clear – as the technological playing field equalizes, the need for cybersecurity becomes more pressing. That’s for the U.S. federal government, for businesses of all sizes, and for individuals, as well. The costs of ignoring cybersecurity are too high for anyone to pay.
And a new generation of startups to answer the call.
When you’re successful in the world of cybersecurity, the rewards can be huge. Blue Voyant, founded in 2017, was pushing a billion-dollar valuation just a year later.
So what should you look for in a cybersecurity startup that would make it worth investing in? What do the seeds of real profit look like?
Looks for startups in these rapidly developing niches.
Machine Learning & Artificial Intelligence
It’s no surprise that artificial intelligence is going to play a huge role in the development of cybersecurity over the next decade. It’s also been used by hackers.
We are stuck in a cyber arms race between security companies and hackers, and I have good reason to believe that artificial intelligence is going to be one of the key tools we use to keep the upper hand.
That’s because cybersecurity systems face constantly evolving threats, and so currently require constant human support. The normal application of cybersecurity software requires human actors to set up firewalls, monitor events, and respond to threats.
But a firewall with machine learning built into its programming will be able to learn from the attacks coming its way and become increasingly deft at identifying and blocking them.
Additionally, learning algorithms can be deployed broadscale across the internet, gathering data on what the latest waves of attacks look like, and preparing their firewalls in real-time for replicas.
There is even the not-to-distant possibility of AI replacing conventional security measures like passwords.
One more recent startup I like in this space is Cognigo. This 2016 startup built a compliance and data protection program powered completely by cognitive computing. Not only do they protect data, they can also help companies come into GDPR compliance orders of magnitude faster than conventional solutions.
Cognigo is an excellent example of how cybersecurity startups can use artificial intelligence to address problems across the technological spectrum. And there’s many more where that came from.
Another player in this corner is Cylance, focusing on predicting and preventing hacks. Whereas most software exists to correct issues after they’ve already occurred, Cylance has automated detect-and-respond programming. While many companies who’ve been taken down by security breaches can’t fully recover, Cylance works hard, acting like a sniper, directly targeting threats identified by predictive AI technology.
IoT and The Cloud
The next decade is going to be defined (in part) by the conjunction of several phenomena: the advent to 5G, the shift to the cloud, and the rise of the Internet of Things.
These events are going to have huge ramifications for cybersecurity.
Modern operating systems like Windows and iOS have developed very sophisticated defenses for most common cyber threats.
But now everything from your fridge to your insulin pump has a chip that’s connected to the internet, and with the rise of 5G, that connection will be lightning fast. The world of IoT is far less well protected.
That’s why we’re seeing new startups like Argus, which builds automotive cybersecurity to protect your fancy new self-driving car from hackers. And iBoss, which secures internet access from any device, anywhere in the world. Instead of following perimeters, as most software is programmed to do, they focus their attention on specifically following their users and their activity within the cloud.
5G is advancing another trend: the move to cloud computing. As of this year, over 80% of enterprise workloads were in the cloud, and 66% of IT professionals consider security to be their chief concern in the move to the cloud.
That’s because cybersecurity is a totally different ballgame in the cloud. And that’s why startups like Sysdig, which builds cybersecurity applications for cloud-based workflows, are making a name for themselves.
Artificial intelligence, IoT, and the Cloud these represent vast new realms for startups to explore and innovate.
The last niche is less broad, in a sense…
I’m talking about specialist startups that focus on addressing very specific malware, viruses, patterned cyberattacks, and the many other unique problems in the world of cybersecurity.
Over the next decade, we expect cyberattacks to become increasingly potent and developed. But we also expect savvy startups to build solutions for each of them. And while businesses might not be interested in licensing a product that only addresses one threat, the prospects for acquisition will be huge.
One startup I like which is doing just that is CTM360, which specializes in stopping attacks from beyond the firewall by sniffing out phishing URLs and fake emails. Or take a look at PerimeterX, which blocks several conventional marketing fraud attacks.
I didn’t need to mention Russia and China for you to know that cybersecurity is an absolute necessity of the modern world. By one estimate, cyber attacks will cost about $6 trillion every year going forward.
And the more the threats evolve, the more opportunities there are for specialization and acquisition.
But let’s be clear – of all the business categories in our 6 Startup Sectors series, this one requires the most insider knowledge to successfully plug into.
The good news is, knowledge can be built. And you can always piggyback on the due diligence of a trusted partner like The Boardroom.
PerimeterX, focuses their attention on bots and security threats posed solely by technology. They use their own AI army to learn varying levels of breach identification methods, both in bot detection and bot protection features. Once PerimeterX can know for certain that a threat is being posed by bots and not humans, it can take them head on to prevent damage before it even occurs. They take an aggressive, purely technological approach.