Security VCs Predict Rise In Managed Security Services In 2017

Security industry venture capitalists said the role of managed security service providers (MSSPs) will become more important as enterprise customers deal with a new host of security concerns.

"I see a continued significant expansion in the market for managed security services," said Bob Ackerman, founder and managing director at Allegis Capital, a cybersecurity-dedicated venture capital firm that focuses on early-stage investments.

Driving that growth is an accelerating threat landscape, Ackerman said, which only a "small percentage" of businesses have the technical resources to handle, pushing them to turn to MSSPs.

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Alberto Yepez, co-founder and managing director of Trident Cybersecurity, a fund of prominent VC firm Trident Capital that focuses on cybersecurity investments, said he sees the same trend. He said customers are recognizing that they need help and are becoming more and more willing to outsource their security, automation, and remote management to third-party companies, like MSSPs.

"This is a tremendous opportunity for the [managed security services] community," Yepez said. "We're seeing more and more companies that go after people that can help them deliver the solution-as-a-service. They will want the technology providers, but they want to make sure their resellers have the capability to offer their product-as-a-service and as a managed security service."

Market confusion is also at play, Menlo Ventures Managing Director Venky Ganesan, said, as customers are inundated every day by new security solutions solving each aspect of the security problem. Customers are looking for "people with deep domain expertise" to help them navigate that landscape, he said.

The numbers show that trend is already starting to play out, with research firm MarketsandMarkets predicting the market for managed security services to grow to $35.5 billion by 2020, up from around $17.8 billion in 2015. For scale, MarketsandMarkets also predicts that the security industry overall, including all parts, will be $202.4 billion by 2021, up from $112.5 billion in 2016.

VCs expect to see a lot of growth and investment around the automation, orchestration and integration of managed security services. Those capabilities become more important as the number of vendors vying for a piece of a company's security budget grows, and customers must implement new solutions in a way that can be managed, Allegis Capital's Ackerman said.

"You will see more and more customers looking for more integrated solutions so they don't have to parse all the bits and pieces and decide which they want and take responsibility for integrating them. They want fewer vendor offerings and more integrated solutions," Ackerman said.

As managed security services grow in prominence, that market itself will begin to change, Trident Cybersecurity's Yepez said. He said he expects to see a lot of acquisition in the MSSP space, both with other companies buying their way into managed security services and consolidation to create scale.

"It's a great market. One thing I've learned is that security innovation doesn't happen in the lab – security innovation comes from the new problems that customers are trying to solve … All these new technology platforms create new attack surfaces that need to be secured and then you need to integrate and automate them," Yepez said. "I think managed security services will be a good market that will continue to evolve in the years to come."