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High-flying cyber companies cut staff after raising hundreds of millions of dollars


Companies that help businesses fight hackers and comply with privacy regulations now face a potentially more formidable adversary: ​​market turbulence.

Around 1,400 workers have been laid off since late May by cybersecurity and privacy firms, many of which have raised hundreds of millions of dollars in recent years. OneTrust LLC laid off about 950 people last month after touting a 2020 valuation of $5.3 billion. 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 proceeds in its IPO last year.

“Everyone was thinking about growing, growing, growing at all costs,” said Lior Div, chief executive of Cybereason Inc., which last month laid off nearly 10% of its workforce, or about 140 employees. “Growth at all costs is no longer something the market will appreciate.”

Many fast-growing tech companies, including cyber startups, have been losing money for years. But the share prices of these publicly traded companies have fallen in 2022, as rising inflation and interest rates fuel fears of a recession. The market jolts have left some cybersecurity and privacy firms watching their spending amid a series of disruptive hacks.

“For a number of years, nobody got into this exercise because capital was free,” said Bob Ackerman, chief executive of venture capital firm AllegisCyber ​​Capital.

With some venture capitalists pulling out of cyber or taking a closer look at potential investments, he said, “the bar is much higher.”

For enterprise security and privacy managers, cuts at cybersecurity vendors can turn into potential risks, said Jeff Pollard, principal analyst at Forrester Research. Inc.

“At the end of the day, you’re dealing with understaffed vendors,” Pollard added. “They took a morale hit.”

Last July, Boston-based Cybereason raised $275 million on its way to doubling its headcount in early 2021 by the start of this year, to around 1,400. The company is still bigger than it was last year despite layoffs in June, said Div. The cuts at Cybereason, which provides software to help companies detect and respond to cyberattacks, were necessary because the company is waiting for financial markets to improve before going public, he said.

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

After raising about $1.8 billion last year, cloud security provider Lacework Inc. laid off about 20% of its staff, or 200 people, in late May. The move was intended to help the San Jose, Calif.-based company turn profitable, co-chief executive Jay Parikh said.

Jay Parikh, co-CEO of Lacework


Photo:

Andrej Sokolow/Zuma Press

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

With a scourge of ransomware attacks and an array of data regulations enacted around the world, executives and investors say demand for cybersecurity and privacy services remains strong. But changing market conditions mean companies that are losing money need cash to become profitable or keep operating until their next investment.

Founded in 2014, IronNet said it racked up more than $207 million in losses when filing documents for public disclosure last year through a merger with a special-purpose acquisition company. In June, the Maclean, Va.-based threat detection firm said in corporate filings that it would lay off about 17% of its staff to “prepare the business for streamlined growth in the future.” “.

Keith Alexander, co-CEO of IronNet and a retired general who previously headed the NSA and the US Cyber ​​Command, declined to comment through a spokesperson.

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

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

For workers, the cuts can amount to sharp setbacks after employers sold them on the rise to work in the fast-growing cybersecurity and privacy industries.

OneTrust, based in Atlanta, was named in 2020 by Inc. magazine as the fastest growing company in America. Last year, the company bought four small businesses to expand its platform, which helps businesses comply with privacy laws and other regulations.

On June 9, while employees were answering business calls or performing other routine tasks, some received email invitations to 15-minute meetings in which they were fired, according to people familiar with the case. In a blog post on the 950 layoffs, or about 25% of staff, chief executive Kabir Barday said that “reducing our workforce and adjusting to the sentiment in capital markets is what is needed to keep us in our position. of leadership”.

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

Tim McAdam, general partner of TCV, which has invested in OneTrust, said his firm has advised the roughly 80 companies in its tech-focused portfolio to be able to cut costs in areas such as marketing and “achieve the break even with the funds they have on hand.

“We’re all going through this without a roadmap, really,” he said.

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

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