David Durand, Advisor, Innovation and Advocacy
September 9th, 2020
David Durand, LL.L., B.Sc. chem., – Founder and Managing Partner of Durand Lawyers – Lawyer (Québec)[...]
What brings more risk to the world stability than a pandemic? Cyber-attacks!
Roar Growth on Medium | Peggy van de Plassche | Sep 14, 2020
How to protect our economies and capitalize on the trend
As Palantir filed for IPO (while also settling a score with Silicon Valley), news on the cybersecurity front has been grim since the start of the pandemic.
One of the unintended consequences of COVID-19 and subsequently of the entire economy moving online was the exponential increase in the points of vulnerability both on the clients’ and employees’ sides. In addition, the uncertain and fearful global environment became a fertile ground for fraudsters. Accordingly, the spike in cyber security threats related to COVID-19 and specifically the influx of associated malware and phishing scams was fast, furious and global; more specifically, attacks against the financial sector increased 238% globally from the beginning of February to the end of April
With the IMF estimating, back in 2018, that cybercrime was costing the world ~$100 billion to 350 billion annually (the equivalent to ~10 to 30 percent of banks’ net income globally) and was potentially threatening financial stability, what are the trends we can anticipate? Below are several areas where I see a lot of activity taking place, hence generating opportunity to capitalize on the disruption.
Insights:
1. Cybersecurity companies will consolidate; valuations are likely to increase as well
2. Allocating capital to cybersecurity companies (that might become M&A targets or platforms), as well as companies enabling them (in space such as cloud computing and AI) should be on most investors’ radars (even for investors focusing on other verticals than Financial services, as the trend is ubiquitous). Cyber firms transitioning from point solutions to platforms should be high on the list for long term holdings; firms with a deep expertise and niche solutions will be of interest as potential acquisition targets with shorter terms horizons.
FFCON20 Video: Investor Perspectives: Fintech Now and Future Vision
3. To get exposure to the potentially outsized returns in the cybersecurity space, allocating capital to funds with deep expertise and track record is a great way in. For those investors who also want to build more direct exposure to the cybersecurity space, they will be able to do so via co-investment rights following investments in private VC/PE funds.
4. From investor perspective, due to the growing risks associated with cyberattacks, banks are becoming inherently riskier while returns, due to the costs of putting in place solid and holistic cybersecurity strategies, are decreasing. This emerging trend has not yet permeated most analysts’ reports, despite its inexorability. Investors will have to get smarter re cybersecurity when allocating capital in the financial services space. The silver lining would be for the bank(s) taking the lead in packaging and commercializing their cybersecurity capabilities, as well as for the one(s) willing to lead the creation of a cybersecurity industry utility.
5. The risk-return profile of existing Fintechs is negatively impacted by the increased cyberthreats (and similar to banks, investors have not yet discounted this dynamic in their valuation process). Once the de-rating exercise takes place, it could create more barriers to entry when it comes to launching new Fintechs (on top of requiring to raise more capital to address the cybersecurity conundrum). The opportunity for some Fintechs to pivot and commercialize their cybersecurity capabilities might in some cases provide a great avenue.
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