Cybersecurity has had a rough go of it lately, with investment in the sector dropping a precipitous 40% compared to the year prior. But there are promising early, even preliminary, signs of a recovery.
The vast majority of chief information security officers reported higher budgets for 2024, according to the cybersecurity-focused VC firm NightDragon. And, despite lower overall investment in the cybersecurity industry in Q1 2024, the number of deals increased compared to Q1 2023, per recruitment outfit Pinpoint.
It’s against this backdrop that Evolution Equity Partners, a growth capital investment firm based in NYC, on Tuesday launched a $1.1 billion cybersecurity and AI fund, the third such fund in Evolution’s history.
The fund, called Evolution Technology Fund III, was oversubscribed, with participation from existing and new endowments, sovereign investors, insurance companies, foundations, fund of funds, family offices and angels. It’ll pursue investments ranging from $20 million to $150 million in cybersecurity firms and startups leveraging machine learning and AI to build “market-leading” platforms, Richard Seewald, managing partner at Evolution and one of the firm’s founders, told TechCrunch.
“The Evolution Technology Fund III has already backed fifteen leading cybersecurity companies, initiating its investment period over 12 months ago,” Seewald said. “We expect to invest in a portfolio of up to thirty companies in the present fund. We’ll work with management teams and founders, providing them with support and insight in areas including sales and marketing, product technology, human capital, M&A and business development, really enabling them to excel.”
With Evolution Technology Fund III, Evolution’s strategy will be to reserve around 75% of the $1.1 billion total for early-growth-stage companies, around 15% for later-growth-stage startups and around 10% for earlier-stage VC tranches, with investments to be made not only in North America but in Europe and Israel, a hotspot for security tech.
“Our strategy is to invest that fund in a diversified portfolio across the different stages of maturity,” Seewald said. “We believe that provides private markets investors with diversified exposure to cybersecurity opportunities.”
ESG will be another factor, according to Seewald.
“Evolution is committed to integrating material environmental, social and governance (ESG) criteria in its investment processes and ownership practices,” he said. “We actively engage with our portfolio companies creating diverse boards and leadership teams bringing varied perspectives to decision-making processes, reducing the risk of groupthink and enhancing accountability.”
We’ll hold them to it.
Evolution, which has offices in Palo Alto, London and Zurich in addition to New York, was founded in 2008 by Seewald and Dennis Smith, who met while working together at the cybersecurity giant AVG (now owned by Avast). J.R. Smith and Karel Obluk — the former CEO and chief scientist at AVG, respectively — joined Seewald and Smith to start Evolution after AVG went public.
Evolution’s 30-person teams manages around $2 billion in assets and has backed 60 companies to date; its previous fund was $400 million. Among some of the firm’s more successful bets are Arctic Wolf (which is planning for an IPO), Talon Cyber (which is reportedly in negotiations with Palo Alto Networks for an M&A deal), Snyk, Aqua Security, SecurityScorecard and Carbon Black.
