More and more people agree: cybersecurity is in our region’s DNA and can continue to be a boom for greater Washington.

But venture capital is pivotal in providing the accelerant for rapid growth of technology companies, and it I fear that the lack of sufficient risk capital is strangling some promising startups.

(Photo courtesy of Jonathan Aberman) (Photo courtesy of Jonathan Aberman)

Overall, the greater Washington region is the eighth-largest venture capital market in the country. For 2015, approximately $1.4 billion of venture capital was invested here.

This capital was provided by 351 investment firms and of those, 252 were from outside of our region — with the remaining 45 indigenous to our market, according to Pitchbook, a well-respected source of market data.

Turning more narrowly to software, approximately $700 million in venture capital was invested in 2015. The most active software investors were a blend of angel groups (NextGen Angels, Blu Ventures and Baltimore Angels), government funders (Virginia’s Center for Innovative Technology and Maryland Technology Development Corp), and institutional venture investors (Grotech and New Enterprise Associates). Not surprisingly, deal frequency tended to highlight angel groups, due to their role as often providing seed capital to new businesses.

The two most active early-stage investors in software are very different in their funding and approach. Virginia’s CIT is a state-funded activity that makes seed investments, operates an accelerator program — Mach37 — and has a technology commercialization fund to jump start new companies. Blu Ventures is a group of highly experienced entrepreneurs using their own money to invest and play a hands-on role with companies where their operational expertise will be meaningful.

Narrowing the focus to cybersecurity start-up funding reveals some interesting data.

In our region approximately $430 million in cybersecurity software venture capital deals took place in 2015 — roughly a third of all venture capital funding.

Although the absolute number of cybersecurity venture investing appears to be a large percentage of overall software investing, one deal (Tenable Network Security) was $250 million of that amount. The remaining $170 million was spread through 24 deals. Pin those deals on a map of our region, and the clusters become obvious: substantially all of the transactions were among companies located in Northern Virginia, Baltimore and Howard County.


Apparently, venture capital firms are making cybersecurity software investments in our region significantly less often than for software generally. Startup capital for cybersecurity startups comes most often from state-funded seed capital provided by Virginia through the CIT and Maryland through TEDCO. Surprisingly, the data does not show any other venture capital investment source doing multiple deals and asserting a commitment to the cybersecurity startup market.

The lack of concentration in cybersecurity investing is somewhat surprising, It’s not like our region hasn’t proven itself. Clearly, companies in this market can achieve national prominence and attract national investors. Just look at the boost our companies have received from leading out-of-region venture capital organizations such as Accel Partner’s investment in Tenable Networks, Kleiner Perkins’ investment in IronNet Cybersecurity and Alsop Louie’s investment in Lookinglass Cyber Solutions.

But, with the market in its current state, we face a huge challenge if we want to better finance our cybersecurity startups.

Obtaining risk capital to start new companies is being fulfilled largely by state economic development funding. And then those able to demonstrate a large and dynamic opportunity for profit can obtain large amounts of capital from leading sources in the venture capital industry.

However, those companies in the middle hungry for funding are in a pickle: they must cast the net widely, without a high level of predictability. Filling this funding gap is clearly a challenge for them, and it is also stifling our region’s growth potential.

Jonathan Aberman is a business owner, entrepreneur and founder of Tandem NSI, an Arlington-based organization that seeks to connect innovators to government agencies. He is host of “Forward Thinking Radio” on SiriusXM, a business and policy program, and lectures at the University of Maryland’s Robert H. Smith School of Business.