Job cuts hit cybersecurity industry despite surging growth from ransomware attacks

https://www.cnbc.com/2022/06/10/job-cuts-hit-cybersecurity-firms-despite-
surging-growth-from-attacks.html

Nothing has lowered Cybereason’s expectations for growth. Rather, the 
continuing rise in ransomware attacks has forced its clients to bolster 
spending on security systems, putting the security software company ahead 
of schedule when it comes to revenue.

But Cybereason is cutting costs anyway, confirming last week that it’s 
laying off 10% of its workforce, or about 100 employees. The reductions 
follow the dramatic swing in the economy this year and the beating that 
software stocks have taken in the public market.

Cybereason’s story resonates with many of the 450-plus vendors in 
attendance at RSA, the premier conference for companies in security 
software. The size, scale, complexity and potential damage caused by 
cyberattacks means that no matter how corporate IT and finance departments 
are responding to inflation and a potential economic slowdown, budgets are 
expanding when it comes to protecting data and networks.

The global cybersecurity market is expected to grow at an annual rate of 
9.5% a year, reaching almost $375 billion a year by 2028, according to 
Vantage Market Research. That’s about double the rate of growth forecast 
for overall IT spending, at least over the next two years, according to 
Gartner.

Still, with the IPO window closed, Cybereason’s plans for its next 
financing round were thwarted. Private capital could have been an option 
but likely with painful terms and an almost certain markdown from the 
company’s $3 billion valuation achieved in a funding round last year. CEO 
Lior Div opted instead to reduce expenses and preserve cash.

“We were working under the assumption that capital would be available, as 
much as we need and at the same price,” Div said in an interview this week 
in San Francisco at the annual RSA Conference, referring to the company’s 
operating plans last year. “We were not optimized as a business.”

There’s no demand problem.

A report in April from security company Sophos said that 66% of 
organizations surveyed were hit by a ransomware attack in 2021, up from 
37% the prior year. The average ransom payment increased almost fivefold 
to more than $800,000, the report said.

Ransomware attacks occur when a hacker group infiltrates a corporate 
network and then holds the data hostage, demanding a sum of money from the 
victim in return for access to the data.

War in Ukraine makes matters worse
The crisis has intensified this year, with cyberattacks from Russia on the 
rise following the country’s invasion of Ukraine in February. 
Cybersecurity authorities from the U.S. and four ally countries released 
an advisory in April, warning of a jump in cyber activity “as a response 
to the unprecedented economic costs imposed on Russia as well as materiel 
support provided by the United States and U.S. allies and partners.”

Cybereason’s technology is designed to recognize when and how malicious 
attacks are taking place by establishing a constant real-time view of 
what’s happening inside networks. The company has been particularly 
effective at helping clients fend off ransomware attacks, thanks to a web 
of sensors across the world that automatically identify anything 
suspicious or unfamiliar that hits a network.

Last year, Cybereason raised $325 million, taking advantage of an 
insatiable demand for high-growth software names. Div said he’d set out to 
raise just $200 million, but money was so free and easy that the company 
went bigger.

Four months later, the Nasdaq peaked. Since then, the tech-heavy index is 
down 27%. Cybereason’s closest public market rivals, SentinelOne and 
CrowdStrike, have dropped 66% and 35%, respectively, over that stretch. 
Meanwhile, SentinelOne reported revenue growth of 109% in the latest 
quarter from a year earlier, while CrowdStrike increased 61%.

Across the board, investors have rotated out of high-growth tech, moving 
into names and sectors that are generally viewed as safer in an 
environment of rising inflation and interest rates. The IPO market ground 
to a halt just as Cybereason was confidentially filing paperwork for an 
upcoming offering.

“We said, ‘OK, we planned to go out, and now we have to make sure we’re 
fiscally responsible and can keep running the business for many years,’” 
Div said.

While neither SentinelOne nor CrowdStrike have backed off their prior 
hiring plans, their slide alongside the broader market has forced pre-IPO 
companies and those at even earlier stages to reassess their prospects 
based on the new realities of the capital markets.

Deep Instinct, a start-up that uses deep learning to try and prevent 
ransomware, cut 10% of its salespeople this week. That’s despite growth of 
over 200% last year in annual recurring revenue, a rate of expansion that 
continued into the first quarter of this year.

Lane Bess, chairman of Deep Instinct, said the company had to get more 
efficient with its sales operation.

“We took a look and said, ‘Where are we being most effective in the 
enterprise?‘” Bess said in an interview at RSA. “Are we doing well in the 
low end of the market, where we have inside salespeople? No. Do we have 
channel partners that can get to that low end of the market? Yes.’”

In late May, cloud security software vendor Lacework said it was cutting 
20% of its workforce, just six months after raising $1.3 billion at an 
$8.3 billion valuation. The company said a “seismic shift” in the markets 
forced it to make modifications.

“While we do not have control of the environment around us, we do have a 
responsibility to control how we operate our business and make changes as 
needed to best position the company for continued and long-term success,” 
Lacework said in a blog post.

Lacework ranked 25th on CNBC’s Disruptor 50 list, which was released in 
May. Cybereason ranked 41st in its second straight appearance on the list.

The layoffs and hiring freezes at companies that had been in hyper-growth 
mode are likely to have a trickle-down effect across the labor market in 
the industry. While every CEO and recruiter will say that competing for 
top technical talent, particularly in security, remains as tough as ever, 
the market turmoil has employers reconsidering how they think about 
compensation.

“It’s less competitive out there, because there are fewer start-ups,” said 
Todd McKinnon, CEO of Okta, a company that provides identity management 
software for corporations. “We want our pay to be at the top of the 
market, but not more. If the market goes down, we don’t want to be slow to 
adjust.”

Like its publicly traded peers, Okta has been hammered this year, with its 
stock falling 58%. But there’s no shortage of business opportunities. 
Revenue jumped 65% in the first quarter.

McKinnon isn’t expecting a flood of talent to suddenly hit the market, 
because “private companies still have a ton of money,” he said. Venture 
capitalists poured a record $332.8 billion into U.S. start-ups last year, 
double the amount from a year earlier, according to the National Venture 
Capital Association.

‘Path to profitability’
High-valued private security companies like Snyk ($8.5 billion), Tanium 
(over $9 billion) and Illumio ($2.75 billion) told CNBC that they have no 
plans for layoffs or to even slow down hiring, as they remain well 
capitalized and are experiencing a boom in business.

Snyk CEO Peter McKay acknowledged that “the cost of money has gone up 
massively from what you could raise before in the multiples going 
forward,” but he said his company is just fine after raising $530 million 
last year.

“We don’t have to raise,” said McKay, whose company’s technology helps 
customers quickly spot vulnerabilities in their code. “We’ve got a path to 
profitability, and we’ve accelerated our path to profitability.”

Charles Ross, chief customer officer at Tanium, said his team is watching 
to see what clients are doing, but as of now there’s no sign of a 
slowdown. The company just closed out its biggest first quarter ever in 
terms of customers and revenue, after increasing head count last year by 
1,000 people, or more than 80%.

One thing Ross said he’s hearing from customers is that they’re 
consolidating their security portfolio into a few essential vendors and 
cutting elsewhere. Tanium’s technology gives IT managers visibility across 
their network to assess threats and see where protection is lacking. It 
typically sits alongside software from endpoint security providers like 
CrowdStrike or SentinelOne, Ross said.

“They’re running us as better together,” Ross said, in an interview at 
RSA.

And at Illumio, whose software helps prevent ransomware and stops breaches 
from spreading across networks, CEO Andrew Rubin said the topic of 
downsizing or letting people go “was not on the agenda” at the latest 
board meeting last month.

“We have absolutely no conversation happening inside the company about 
laying anybody off,” said Rubin, whose company raised $225 million last 
year. He said the company has “years and years and years and years of 
runway.”

WATCH: SentinelOne CEO discusses keeping an eye on possible cyberattacks 
from Russia



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