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What VC Investment Is Like for Cybersecurity Startups and Entrepreneurs Heading Into 2023

The need for more funding throughout the cybersecurity industry is essential for innovative startups to thrive across the globe. In response, Forgepoint Capital recently announced a brand new alliance with global banking leader, Santander.

We spoke with Forgepoint Capital's Co-Founder and Managing Director Alberto Yépez to discuss the new partnership, the cybersecurity investment landscape, and how the firm sees cyber investment evolving with macro economic trends. What is Forgepoint's mission?

Alberto Yépez, Forgepoint Capital

As the most active, early-stage investor in cybersecurity VC with the largest portfolio and dedicated investment team, Forgepoint Capital’s mission is to ensure a safer and more prosperous world by investing in transformative companies protecting our digital future.

Our team combines a thesis-driven approach with hands-on experience backing and building great companies. Core characteristics of this approach includes:

  • Hands-on collaboration: The Forgepoint team works hard to be a trusted partner to its portfolio companies, providing guidance on product development, go-to-market strategy, recruiting, fundraising and more – collaborating with customers to support product-market fit along with the help of their Advisory Council and operating team.

  • Relationship-building: The Forgepoint team is committed to building a trusted and thriving community of innovators across industries who find meaningful ways to work together to solve global business challenges.

  • Environmental, Social, and Governance (ESG): Forgepoint is founding signatory of ILPA’s Diversity in Action Initiative and an active participant in the ILPA’s ESG Data Convergence Project. The company brings a diverse team, which is passionate about creating positive societal change and abides by responsible investment pledges.

How does this upcoming partnership differ from how others in the investment community approach cyber?

Santander and Forgepoint share a mission to enable economic growth and help businesses and individuals prosper by supporting cybersecurity innovation. This partnership unites a premier financial services organization that is one of the world’s most innovative corporations and a leading cybersecurity VC firm to empower great entrepreneurs building critical, emerging technology. We know that building successful companies cannot happen by providing capital alone.

This partnership differs from others in the investment community in a few ways:

  1. Banks are increasingly becoming LPs in VC funds, but not with this sector focus. Unlike generalist funds that may have a one or two investors focused on this sector, Forgepoint is dedicated to investing in and building with cybersecurity and cloud infrastructure companies.

  2. Unlike the traditional corporate venture capital model where a corporation creates a fund that invests off its balance sheet via an annual allocation, FPCI is expected to operate as an independent entity with direct capital from Santander as the anchor limited partner.

  3. The level of support and collaboration. Together, Santander, Forgepoint and FPCI can hone the identification of market opportunities pre-investment then greatly accelerate the growth of portfolio companies’ post-investment, leveraging the scale, reach and insights and networks across their teams.

The establishment of Forgepoint International represent a significant milestone for our teams, and we’re excited to work together to identify gaps and accelerate the growth of companies solving the global business challenges of our time.

Talk to us about investing in cyber across Europe and Latin America. What is the market opportunity?

Both Europe and Latin America are expected to register significant growth in the cybersecurity market. Increased Internet and smartphone penetration, growing digital transformation and cloud adoption combined with the rise in cyberattacks and increased regulation are driving the rapid uptake of cybersecurity, cloud and application security, data protection, threat intelligence and privacy solutions. Moreover, Europe and Latin America especially are critical environments to cultivate talent and build cybersecurity capacity, offering new capabilities and offshore resources to the US and other countries as the world faces a global talent shortage.

Forgepoint already partners with emerging companies from Croatia to Mexico, Madrid to Tel Aviv, and has been actively tracking thousands of companies worldwide. From our research and experience investing in companies headquartered in these regions or with distributed teams, it is abundantly clear that the cyber ecosystems across Europe, Latin America and Israel have an incredibly rich talent pool, strong demand signal and robust capital accessibility – and that cybersecurity is a growing, global problem. Small companies remain a critical source of innovation for technology large enterprises cannot spend time and resources developing.

How do you see cyber investment evolving in 2023?

In 2023, we’ll see down rounds for companies that raised at high valuations and an increase in M&A due to high valuations over the past two years as companies are unable to raise additional capital. Meanwhile, strategics and established vendors will keep up their steady appetite for M&A, acquiring innovative technology they cannot or would not develop themselves. I also see increases in early-stage investing at normal valuations – setting more reasonable expectations for company growth. Overall, this is a great time to build new companies.

How do the macroeconomic trends affect how early-stage cybersecurity startups should position themselves?

Economic downturns, no matter how severe, are the best time to build companies, especially in cybersecurity. My advice for entrepreneurs is to validate the need before you invest time, resources, and manpower into it. To succeed, you must be able to problem solve on behalf of your customers. You need to have a clear understanding of the challenges impacting them, including these market conditions. From there, you must remain agile, understanding that your strategy for helping customers could — and likely will — evolve based on the changing threat landscape and their context. The biggest mistake I have seen entrepreneurs make is thinking that they need to go to market right away without making sure they have product-market fit – and then trying to force fit their solution without knowing what their customers really need. So, take your time, identify the white space, and maintain your focus on your customers throughout the entire process.



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