Cybersecurity Private Equity

Cyber TRUST™ Index

129

-0

52 Week

223

120

Index at 100 on January 1, 2020

Discovering the Next Exabeam: Tips for Investors

Key Takeaways

  • Exabeam is a fast-growing startup.
  • The company raised $200 million in Series F funding in 2021.
  • More growth could be on the way, thanks to the organization’s impressive revenue.
  • Learning some tips could help investors spot cybersecurity companies with growth potential.

Investors around the globe have taken notice of Exabeam’s 200m Series F funding, as the cybersecurity startup is somewhat of a unicorn in the space. This growth should assist as the company competes with two similar platforms for market share and potentially goes public in the coming years.

The success of Exabeam intrigues investors because it shows that cybersecurity startups that both add value to the industry and develop new solutions to existing security problems could experience long-term growth. This guide will walk you through the maturation of this company and provide tips on how investors can identify the next Exabeam early in the process.

What Is Exabeam?

Exabeam is a late-stage startup in the cybersecurity industry that aims to become the most trusted cloud SeCops platform available. The company started in 2013 and has experienced significant success since that time. 

The company’s platforms use advanced analytics to identify high-risk user actions on networks. They begin by establishing a baseline of activity, which they then use to detect threats and automatically assign each threat a risk score. 

Organizations that use Exabeam’s platforms have access to state-of-the-art anomaly detection that should limit cybersecurity incidents once they establish a baseline. This unparalleled efficacy is why the company is exploding in popularity and raised $200 million in Series F funding in 2021 alone.

Examining Exabeam’s Success

The success of Exabeam is measurable in a number of ways. Looking at its evolution can be an important exercise for investors seeking a similar startup to back. Here are some company highlights since its founding in 2013:

Funding

Exabeam got off to a good start in 2014 with $10 million in Series A funding from various venture capitalist groups, followed by $25 million in the Series B round in 2015 and $30 million in the 2017 Series C round. Further growth came in 2018 with a $50 million Series D round, and a $75 million Series E round followed in 2019. The $200 million Series F round in 2021 is getting all the headlines, but the company has raised a total of $390 million in funding since 2014.

Revenue

Exabeam’s revenue paints a clearer picture of why the company is so successful. Estimates suggest Exabeam’s current annual income is $111.5 million per year, and the organization is poised for further growth in the coming years. The SIEM market of which Exabeam is a participant could be an $18.12 billion industry by 2023, showing tremendous growth potential for companies in that space. 

Value

Exabeam’s funding growth and the quality of its platform are aiding its valuation. The company is worth $2.4 billion, and the organization remains one of the world’s most heavily funded cybersecurity startups. This valuation has some market watchers wondering if Exabeam will soon be going public. 

Major Deals

Organizations worldwide use Exabeam’s platforms to identify and address potential cyber threats. Two of the company’s most notable clients are Levi Strauss & Co. and NTT Data Group, proving that multinationals trust this technology and use it to keep their networks safe.

Software

It’s worth noting that Exabeam has two software platforms: Fusion XDR and Fusion SIEM. Fusion XDR is a cloud-delivered, automated threat detection, investigation, and response system. Fusion SIEM offers security analytics and automation with enterprise-scale logging and search, enabling it to catch threats other tools could miss.

Leadership

Company leadership is going through a transition, as co-founder Nir Polak was recently replaced as CEO by Michael DeCesare. DeCesare is the former CEO and president of ForeScout, another automated cybersecurity platform, and also spent four years as president of McAfee. This move shows Exabeam is ready for further growth, as DeCesare is a big name in the cybersecurity industry.

Exabeam’s growth has been quick yet stable, perhaps primarily because the company creates such effective, high-quality products. Determining why this organization is so successful can assist investors seeking the next Exabeam.

7 Tips for Finding the Next Exabeam

Investing in cybersecurity startups can be highly lucrative, but it also comes with significant risks. Knowing the most effective attributes of successful startups can put you on the right track. Some tips to consider when looking for the next Exabeam include:

1. Find Passionate Founders

Even outstanding ideas can fall flat if the founders aren’t passionate about the company, its growth, and the industry. The founders you’re looking for should focus on taking the organization to the next level and truly believe in what they’re trying to accomplish. Learning about the founders, their backgrounds, and their motivations is a good starting point when researching potential investment opportunities. 

2. Examine the Market Size

Identifying the opportunity for growth is vital when examining startup investment opportunities. For instance, a company that will only serve a small geographical area or a limited subset of society doesn’t have much growth potential, while an organization that could go global in a rapidly expanding industry has significant promise. Cybersecurity groups aiming to solve existing widescale problems could have room for growth moving forward.

3. Look for a Competitive Advantage

Figuring out why a particular cybersecurity platform or software is unique and could have an advantage over its competitors is critical when researching investment opportunities. A product that’s too similar to what is already available could struggle to gain traction because customers have little incentive to try it. A quality cybersecurity startup will need to offer something different to gain attention, since the market already has established companies providing solutions.

4. Identify Domain Expertise

The company’s founders should have superior industry knowledge or, at the very least, have the capital to hire industry experts. There are situations where the founders of a startup have business experience and can identify a need within a particular industry, but their lack of industry-specific expertise comes back to bite them. 

5. Ask about Staff

Delegation is vital for any startup because the amount of work going into these projects can be overwhelming. Founders sometimes make the mistake of believing they can do everything themselves, leaving them overworked and ultimately burning them out. Founders should be hands-on throughout the startup process, but inquiring about how they plan to delegate specific jobs to avoid burnout is advisable. 

6. Learn the Exit Strategy

Investors eventually want to see a return on the money they’re putting up, so asking how much of a return is expected and when it might arrive is recommended. Items you might inquire about include a description of the assumptions behind the financial model, a set of pro forma financials, a return on investment analysis, a sensitivity analysis on key variables, and a cash sources and uses report. This information provides some expectations for potential backers as they make key decisions about investing.

7. Think about the X Factor

The X factor is an intangible trait a particular idea might have that helps it gain traction or connect with investors. Listening to presentations and reading material can help you relate with a product or its founders, which might push you to ultimately make an investment. The X factor is worth considering when a startup meets the other criteria you’ve set, because most successful ideas have a unique X factor that sets them apart.

Investing in a cybersecurity startup could be highly beneficial, but you’ll want to carefully look at an organization’s potential before putting up any money. Doing your research and figuring out the company’s growth potential should be your priority because it can help you avoid some pitfalls.

Common Pitfalls of Cybersecurity Investment

Cybersecurity investment is never a sure thing because there are always risks and drawbacks. Learning what could go wrong helps you begin your investment relationship with as much information as possible. Potential pitfalls include:

They’re Risky

About 90% of startups fail for various reasons. The idea could be great, but the startup could fall flat if the company doesn’t have exemplary leadership, marketing strategy, or timing. Investors should know the risk before they begin, so they aren’t disappointed with the result.

There’s Little Liquidity

Investors who purchase stocks can typically sell their investments whenever they wish if they need the cash. Investing in startups is different because they don’t have much liquidity, so the money is tied up for years at a time. Even liquidating through secondaries isn’t guaranteed, so investors should ensure they’re comfortable with the lack of liquidity before signing on.

Results Take Time

Even successful startups take years to generate a return for investors. You’ll need to remain patient, because the company will put much of its early revenue toward growth before the returns start arriving.

The cybersecurity industry is constantly evolving, and there will be plenty of investment opportunities for the foreseeable future. Learning what could go wrong with these opportunities is critical for investors looking to understand their risks and make wise decisions.

Contact an Expert for the Advice You Need

Exabeam’s success is a bit of an anomaly, as its quick, significant growth isn’t terribly common. However, investors will be looking for the next Exabeam, and market research will be essential in identifying cybersecurity startups poised for growth. 

Option3 offers cybersecurity investment advisory services for investors. We specialize in identifying and developing attractive opportunities for the investors we serve. Contact Option3 for more tips on cybersecurity investing.

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