Cybersecurity has proven to be a good bet in the COVID-19 era, with national venture capital trends favoring cyber prominently on view in the DMV. But that prominence requires a deeper look at the ways investment are happening.
At March’s CyberMaryland Conference, Squadra Ventures Managing Partner Guy Filippelli joined fellow D.C.-Maryland-Virginia cybersecurity investors Justin Label of Inner Loop Capital and Michael Sutton of Stone Mill Ventures for a discussion on the “new normal” for cybersecurity investing in wake of the COVID-19 pandemic.
With their analysis of the market over the last year and perspective on the impact of trends, the group provided insight into the area as a venture capital hub and trends for cybersecurity entrepreneurs.
COVID-19 and the future of work
COVID-19 has presented a unique challenge to founders and investors alike, but as we settle into the new normal, we are slowly able to find silver linings in the seemingly dark clouds of the pandemic. For starters, working from home has allowed for much more time to be spent with family as opposed to the constant traveling.
Before COVID-19, the norm was a widespread aversion to virtual companies and remote work, with many investors preferring to take a hands-on approach, meaning that they had to meet the company’s leaders firsthand before investing. However, that has shifted with the emergence of remote work as not just a temporary workaround, but in many cases the default going forward. While the effects of Zoom fatigue are real, it does open up opportunities to get more done in a single workday, making it possible to meet with many teams across the country as opposed to traveling to a specific city to meet with one team.
One challenge in this remote working paradigm is the difficulty in building a strong team culture virtually that motivates and inspires employees to perform their best. Founders should be cognizant of this challenge and proactively make concerted efforts to foster a team environment and instill their desired culture and norms, something that tends to happen more organically if the team is meeting every day in person.
The DMV as an emerging cybersecurity hub
When most people think of venture capital and startups, Silicon Valley and New York City are the two markets that come to mind. This perception is due to the presence of unicorns, incubators and mentorship opportunities available within these regions. However, our panelists pointed out that when it comes to cybersecurity, the DMV tri-state area is second to none in terms of talent, clientele and opportunity, due to the government contractor influence on the region.
“I believe there is currently no better place to start a cybersecurity company than the D.C.-Maryland-Virginia area,” Sutton said.
The DMV region has long been guided by an emphasis on government contracting and a service-based business model, but cybersecurity investing is now seen as a vehicle for founders to transition to a more product-driven business model. The service-oriented mindset has led to close attention to detail on what clients need. But with cybersecurity products, the goal should now be to translate those needs into innovations on the product development roadmap, where the company is taking a proactive approach as opposed to a reactive one.
All panelists agreed that for the DMV region to take the next step as an entrepreneurial hotbed, they must combine resources. To compete with Silicon Valley and New York, we must begin to think of the region as homogenous, as opposed to D.C. vs. Maryland vs. Virginia. The COVID-19 pandemic has been instrumental in leveling the playing field as founders are now looking at alternative markets for funding and capital raising as opposed to just the usual suspects.
Lessons learned and advice to cyber entrepreneurs
Within cybersecurity, there has been an increased emphasis on the technology. On average, entrepreneurs seem to spend the majority of their pitch touting the technology they have developed and trying to convince investors that with funding, they will be able to sell that technology.
Filippelli believes that a shift from discussing their technology to discussing their business model and vision for the company would be most impactful to investors.
“Ultimately, we are evaluating companies based on two key decisions,” he said. “Are we excited about and believe in the founder’s five-year vision? And do we understand, trust, and believe in their ability to execute their 12-month plan?”
These entrepreneurs need to be able to clearly articulate their value proposition and discuss in detail along with what they would tactically accomplish with funding over the next 12 months. This combined with taking a show rather than tell approach towards their pitches will help further differentiate them in an increasingly crowded market.
Finally, never underestimate the power of a strong network and always play the long game. Seek constant feedback, iterate on your concept, and seek more feedback. The VC community is tight-knit, and it helps to invest in long-term relationships to get your name out there and build your company’s brand and your own brand as an entrepreneur. It is important to note that when investors buy into a company, they are committing to a long-term relationship, which can set a founder up nicely for their next business concept if they work at organically cultivating that relationship.
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