Economic uncertainty puts enormous pressure on cybersecurity startups already struggling to break into a crowded market. It’s bad news for both these nascent companies and their potential customers: As cyberattacks grow more prevalent, the need for innovative solutions from startups is greater than ever.
How can these up-and-coming businesses navigate the storm?
Doing More With Less
Tough economic times force nearly all organizations to tighten budgets and do more with less, and cybersecurity isn’t immune to these pressures. However, with pressure comes opportunity — the opportunity to partner with strategic investors, which can build value that will serve as the foundation for your startup’s future success. A strategic investor, usually a larger company in the same industry, will choose a partnership because of their strategic interest in that business. Beyond capital, they provide guidance on how the startup can grow and evolve in the cybersecurity market.
This guidance comes from subject matter experts who have been through their own business challenges and downturns in the security space, and can share advice based on their experiences in unfavorable market conditions. Strategic investors may also provide go-to-market enablement and/or validate a security startup’s capabilities at a time when customers are generally more risk-averse. Cybersecurity startups with low-friction deployment models can capitalize on the real estate of strategic investors to expand their sales pipeline, as direct sales opportunities become sparser in a tough economic climate.
Seeking the Right Strategic Investor
The capital and guidance of a strategic investor can make a substantial difference in growing a cybersecurity startup. However, it’s imperative you choose the right strategic investor that aligns with your company’s values and goals. Where does your business need help? Which strategic investors have the resources and expertise to provide it? What vision do you have for your technology and how it will help solve customers’ problems in today’s evolving threat landscape?
Education is the first step in this process. Strategic investors have a wealth of public information available that can help startups develop their pitch. You should evaluate the materials provided across investor relations pages, security product briefs, conference presentations, partnership and marketplace pages, and security industry analyst coverage. These resources can help ascertain whether a strategic investor will be a good fit.
Questions to Evaluate Best Fit
To help evaluate candidates, ask yourself the following questions:
- Is this strategic investor a cybersecurity market leader?
- Do they have the customer base, mindshare within the ideal buyer persona, and technology to warrant investment in a deep partnership?
- Where is this strategic investor going? Does my startup’s product complement theirs, or is it likely to be competitive in the near term?
- Who else are they working with? Are they strategically aligned with my company’s competitors in the security space?
- Do they have any experience working or partnering with other cybersecurity companies?
- Does this strategic investor have a gap in their security platform that my company’s product is uniquely positioned to help them solve?
- How is their platform built? Do they have the right architecture to enable seamless integration?
- Does my company have shared customers that could validate the impact of an integration in the near future?
- Who has this company invested in previously? Is there a healthy cadence of partnerships or are they more “one-off” in nature? Is there market evidence indicating value that goes beyond a press release?
Is a Good Strategic Investor Also a Good Strategic Partner?
Partnering with a strategic investor is different from working with a venture capital firm or angel investor. It’s important you not only find the right strategic investor but the right technology partner for your cybersecurity business.
With the information you’ve collected and your answers to the above questions, you’re well-prepared for a conversation with a potential strategic investor to review the technical aspects of your partnership. During this time, you can discuss integration hypotheses and seek feedback. Consider asking these questions:
- How long does an integration typically take to build and go live?
- How can we announce the partnership and maximize market impact?
- What resources do you have in place to help accelerate go-to-market?
If their feedback is positive and there is a clear strategic fit, most strategic investors can provide non-production access to their platform with prepopulated data and documentation to scope potential integration anchor points. From here, you can evolve the partnership pitch and ask to be connected with the company’s product management team to get buy-in from the correct stakeholders.
As part of this process, you may consider providing incentives to drive go-to-market prioritization. Determine the typical revenue share structure within your partnership agreements, and see if there’s an opportunity to provide a more competitive revenue share based on your gross margin structure and the number of potential customers through the strategic investor.
Strive for Mutually Beneficial Goals
The value of your strategic partnership will depend on efforts from both your company and the strategic investor. Bi-directional effort fuels long-term stability. You should work with your partner to create 6-to-12-month, integration, and go-to-market plans, and establish mutually beneficial goals at the outset of the investment. Prioritize your relationship, meet regularly, and monitor your progress toward these goals.
Economic uncertainty is tough for cybersecurity startups, but you don’t have to weather the storm alone. Strategic investors are invaluable for helping these startups succeed and provide much-needed technology to organizations defending against cyberattacks.
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