High-flying cyber companies are cutting back after raising hundreds of millions of dollars

Companies that help companies fight hackers and comply with privacy rules are now facing a potentially more formidable adversary: ​​market turmoil.

About 1,400 workers have been laid off since the end of May from cyber and privacy firms, many of which raised hundreds of millions of dollars in recent years. OneTrust LLC fired about 950 people last month after announcing a valuation of $ 5.3 billion by 2020. IronNet Inc.,

led by a former head of the National Security Agency, laid off 55 workers in June after raising nearly $ 137 million in gross revenue when it was announced last year.

“Everyone was thinking about growing, growing, growing at any cost,” said Lior Div, CEO of Cybereason Inc., which last month laid off nearly 10 percent of its workforce, or about 140 employees. “Growing at any cost is not something the market will appreciate more.”

Many fast-growing technology companies, including cyberstartups, have been losing money for years. But stock prices for such listed companies have fallen in 2022, as rising inflation and interest rates give rise to fears of a recession. The market upheavals have left some cyber and privacy firms scrutinizing spending amid a wave of disruptive hacks.

“For a number of years, no one went through that exercise because capital was free,” said Bob Ackerman, CEO of cyber-focused venture firm AllegisCyber ​​Capital.

With some venture companies withdrawing from cyber or more closely exploring potential investments, he said, “the bar is much higher.”

For corporate security and privacy executives, cuts at cybersecurity providers could turn into potential risks, says Jeff Pollard, chief analyst at Forrester Research Inc.

“You ultimately have to do with salespeople who are more concise,” Mr. Pollard. “They have hit morale.”

Last July, Boston-based Cybereason raised $ 275 million on its way to doubling its number of employees in early 2021 earlier this year to about 1,400. The company is still larger than it was last year despite layoffs in June, Mr Div said. The cuts at Cybereason, which provides software to help companies detect and respond to cyber attacks, were necessary as the company waits for financial markets to improve before being listed, he said.

“That [stock] the market right now – it is closed, ”he said. “Our assumption is that the market will still be closed in at least 12-18 months.”

After raising about $ 1.8 billion last year, cloud security provider Lacework Inc. fired. about 20% of its employees – or 200 people – at the end of May. The move was aimed at helping the San Jose, California-based company become profitable, said Co-Chief Executive Jay Parikh.

Jay Parikh, Co-CEO of Lacework


Photo:

Andrej Sokolow / Zuma Press

Profitability was not always rewarded in the financial markets last year, Mr Parikh said, refusing to comment on when he expects to make a profit. “It’s a fundamental change,” he added.

With a flurry of ransomware attacks and a string of data regulations adopted around the world, executives and investors say demand for cyber and privacy services remains strong. But the market shift means that money-losing companies need cash available to become profitable or continue to operate until their next investment.

IronNet was founded in 2014 and said it had accumulated more than $ 207 million in losses when they filed papers to be published last year through a merger with a special purpose acquisition company. In June, Maclean, a U.S.-based firm that specializes in threat detection, said in securities applications that it would lay off about 17 percent of its staff to “put the company ready for rationalized growth going forward.”

Keith Alexander, IronNet’s co-chief executive and a retired general who previously led the NSA and US Cyber ​​Command, declined to comment through a spokesman.

Guy Caspi, CEO of Deep Instinct Ltd., said his company’s decision in June to lay off nearly 50 employees was not about cash flow problems or market pressure, but rather a lack of returns from small and medium-sized customers.

“It was just a waste of time for us,” said Mr Caspi, whose company’s software aims to help customers prevent ransomware attacks and other threats.

For workers, the cuts could pose sudden setbacks after employers sold them on the upside of working in the fast-growing cyber and privacy industry.

Atlanta-based OneTrust was named by Inc. in 2020. magazine for the fastest growing company in America. Last year, the company acquired four smaller companies to expand its platform, which helps companies comply with privacy laws and other regulations.

On June 9, when employees made sales calls or performed other routine tasks, they received some calendar invitations via email to 15-minute meetings where they were fired, according to people familiar with the matter. In a blog post about the 950 layoffs, or about 25% of employees, CEO Kabir Barday said that “reducing our number of employees and adapting to capital market sentiment is what is needed to keep us in our leading position.”

Mr. Barday declined a request for an interview through a spokesman who did not respond to written questions.

Tim McAdam, a general partner at TCV who invested in OneTrust, said his company has advised the approximately 80 companies in their technology-focused portfolio to be able to reduce costs in areas such as marketing and “get to break-even with the funds they have” at hand.”

“We all get through this period in a way without a roadmap, really,” he said.

Write to David Uberti at david.uberti@wsj.com

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