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Financial expert sees value in new security firms

The global economy may be in a steep decline, but VC funding available to new software vendors demonstrates a sound business strategy.

BOSTON -- It's an understatement to say that economies are declining globally. Companies everywhere are struggling to generate revenue and make new sales while stock markets plummet and governments move in to shore up their financial sectors.

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And while the security industry isn't immune to the downturn, at least one software expert says now is the time for new startups to enter the market.

"You have to have a plan to take advantage of the situation," said Peter Kuper, managing partner at HypAdvisor Consulting LLC and faculty member at the Institute of Applied Network Security (IANS). "Software vendors should be thinking about what they're going to do with their position of strength or how they're going to get to that position of strength if they're not yet there." 

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Kuper, who spoke Wednesday in the opening keynote of the SOURCE Boston security conference, has monitored the software industry for over a decade and served as the lead software analyst at Morgan Stanley. If companies can look beyond current conditions, he said, they will see potential opportunities.

For example, companies can take advantage of the downturn by negotiating heavily with software vendors for the best deal and shopping for new technologies with cash.

"All these vendors have to prove their value to you," Kuper said. "As a buyer, you have to extract more value out of your vendors."

At the same time, startup companies can benefit, too. On average, Kuper said, software vendors, comprise about 25% of VC deals. As well, a down economy means more people are eager to work and willing to accept lower pay, which can help startups with limited budgets, he said.

While it may be a good time to start a company, many startups will struggle with putting together a sound business model, said Adam Shostack, blogger and author of The New School of Information Security. Shostack said he agreed with nearly all of Kuper's points.

"It's not easy to start without showing what kind of value you're going to offer to prospective customers," Shostack said. "But certainly the funding seems to be out there." 

Some vendors, such as Core Security and eiQnetworks, have announced additional VC funding. Brian Cleary, vice president of products and marketing at access governance vendor Aveksa, Inc., said his firm recently accepted $10 million in Series C round of financing. Cleary said that despite the current economic climate, Aveksa plans to expand operations with the funding, including hiring engineers and developers to boost research and development.

"We're looking at new markets to enter in terms of geography and seeking to solve additional problems in the access governance space by adding to the product line," Cleary said. "We're trying to keep ahead of where the market is and the requirements our customers have."

Added Kuper, when markets eventually rebound, the companies that took advantage of the downturn will come out the winners.

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