Investments in companies offering cybersecurity solutions for the financial services industry were up 27% in Q1 2018 compared to the same quarter last year, according to research from FinTech Global. Although total investment has been declining since Q2 last year, this is due to the irregularity of large deals rather than a complete downtrend.
There is a lack of later-stage deals this year
Capital invested in Q1 2018 reached $725.8m, a decrease of 18.2% from the previous quarter. 
The drop in total investment in the opening quarter of 2018 can be attributed to a lack of later-stage deals valued above $100m. There were two such deals during the previous quarter, including a $150m private equity investment in Skybox Security, a cybersecurity management platform, led by CVC Capital Partners. Conversely, investments valued under $100m actually increased by 30.3% in Q1 2018 compared to the previous quarter.
Despite the fall in total investment, deal activity increased for the first time in four quarters with a total of 44 deals completed.
The largest cybersecurity deal so far this year was a $75m Series B investment in Ledger, a developer of security solutions for cryptocurrency and blockchain applications, led by Draper Esprit.
Investors are increasingly looking to companies outside of North America
From 2014 to 2017, North America’s share of cybersecurity deals dropped by 12.9 percentage points from 80.6% to 67.7%. This further decreased in Q1 2018 reaching 63.7%. The drop was mainly offset by an increase in deal share in both Europe and the Middle East & Israel. Europe’s share of deals increased from 12.6% in 2014 to 15.9% in 2017. This trend continued in Q1 2018 to reach 18.2%. 
Similarly, the Middle East & Israel’s deal share jumped from 4.4% in 2014 to 11.7% in 2017. This figure reached 13.6% in Q1 2018, more than triple the original value. The growing cybersecurity hub in Israel is the catalyst for this shift. Israel has developed a strong cybersecurity ecosystem that promotes collaboration between the government (including the military), private sector organizations and universities.
US venture capital firms and corporates are the top backers of cybersecurity companies
The ten most active investors in the cybersecurity sector between 2014 and Q1 2018 are all headquartered in the US. The list is comprised of seven VC firms, as well as the investment arms of three corporates: Google, Dell and Intel.
New Enterprise Associates (NEA), a Menlo Park-based VC, was the most active investor over this period with 30 investments. The largest deal that NEA participated in was a $110m investment in Cloudflare, a web performance and security company, in Q3 2015. Accel Partners follows with 25 investments. The firm’s portfolio includes some of the most well-funded cybersecurity companies including Tenable, Illumio and CrowdStrike.
