Home > Trends > Who is Innovating the Innovators?

Who is Innovating the Innovators?

[I’d like to welcome Liz Safran as my first guest author here on SecurityDreamer]

Tech is booming again, or so the experts say.  In December 2006, Dow Jones VentureOne and Ernst & Young reported that venture capital investors were on track to invest more than $32 billion in 2006 — the most VC capital invested since 2001.

Despite the overall increase in spending, investments in information security have actually gone down.  After reading several VC blogs that explore the subject, my take away was they didn’t find it is that all that exciting or profitable to invest in a company where the end result is to add a one-off point product to some large vendor’s suite.

But I think there are also some cultural issues at play. The start-up scene (especially in Silicon Valley) is extremely interconnected.  When you whittle it down to information security start-ups, everyone is (pretty much) one degree of separation apart – which can be both a good thing and a bad thing.   

On the pro side, if you’re part of a company that had a successful exit, you often find opportunities to work with people you like, trust, and have had prior success with.  On the con side, too much time is spent on repeating exactly what worked last time – which can lead to tunnel vision and missed opportunities. 

The lack of IT security start-up interest in physical and IT security convergence is a perfect case in point.  Despite any claims of working towards an IPO, the trend with security start-ups has been to build a sustainable business and, as soon as possible, sell the company to a big name tech company.   

Even though they know convergence is happening, can’t see beyond the typical VC flip model.   The IT security startups in the access management space (which is hot right now thanks to a few recent regulations) are so busy competing against or trying to hop into bed with their 800 lb. counterparts that they are missing the gravy train. 

Note the irony here – the very folks who are selling innovation to the status quo are missing the opportunity to practice what they preach and innovate themselves.  What’s even more ironic is that the big guys get convergence, and have hopped on the bandwagon – big time.

Take Cisco for example.

With its acquisition of SyPixx Networks in March 2006, Cisco placed its bet on video surveillance as the banner app to drive converged systems and has a decent amount of easy-to-find content on its site to support its growing IP video surveillance product and services portfolio.

With walls (that need to be watched by numerous people in numerous places from numerous devices) going up in Mexico and Israel, not to mention all the new services that can be built on top of watching people do just about everything, it doesn’t take a rocket scientist to see why Cisco’s all over convergence.  And the big software guys are right behind them…

As far as the start-ups are concerned, talk about looking a gift horse in the mouth – there’s going to be a lot of folks kicking themselves in the Valley over the next couple of years…

Analysts, like 4A, predict that in 2007 the Physical Security & IT Convergence market will command global revenues of over $6 billion and by exceed $22 billion by 2010. It will unfold around two mature applications — identity management and event management – and addresses clear, well documented set of business pains, the main one being that physical security technology is archaic and does not sufficiently meet customer needs.

So why aren’t valley start-ups culling what appears to be a lucrative, untapped market?  Some say timing.  No one seems to be disagreeing that convergence will and should happen, but some – including a well known investment banker focused on IT security that I had a drink with on Friday, seem to think it’s still a few years out.

I think it’s happening now, or at least could be happening now if more start-ups would make due diligence on the convergence market a priority.  Of course they can leave that to bigger companies that might buy them eventually anyway, but in doing that they could lose out on high multiples, the opportunity to lock in long term, strategic relationships, and the host of other business advantages that come with being at the right place just before the right time hits.

If the start-up wonks would only pull their heads out of the sand long enough to drink some of their own Kool-Aid.  Hell, I’d join ‘em….

Liz Safran is a PR consultant that specializes in working with Information Security start-ups. she can be reached at lizsafran@gmail.com

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Categories: Trends
  1. January 23, 2007 at 9:28 am

    Liz,
    I think you make some excellent points. And you are right, convergence is an important trend that will having lasting impact on the security market. As a founder of one of Silicon Valley’s only VC-backed physical security startup, I thought I’d lend some perspective on venture capital.
    VC firms typically seek investments in defined spaces where they already understand the dynamics (channels, products, competitors, etc.). Unfortunately, this often leads to overinvestment in familiar spaces (e.g. information security) and underinvestement in unfamiliar in spaces (e.g. physical security).
    3VR was conceived in part by recognizing the convergence trends you described. Our founders came from an IT background and focused on bringing a number of IT technology and management innovations to physical security.
    When 3VR raised capital, we specifically sought out investors who had a track record of investing in markets previous untapped by the rest of the Valley. We ultimately chose to take money from Kleiner Perkins who definitely fit this profile. KP invested in Sun when “network computing” was nothing more than a concept. They invested in Netscape when the Internet was considered “ham radio for tech nerds.”
    Since KP’s investment, we’ve seen many other Valley firms getting interested in the space. Convergence is less of a secret in Silicon Valley than it once was. My advice to fellow entrepreneurs is to seek out firms with a demonstrated track record in taking chances on unfamiliar spaces. This will lead to a better, more collaborative working relationship with your investors.

  2. Anonymous
    January 23, 2007 at 11:23 am

    Liz,
    I’ve been touching different parts of that elephant. For 27 years as a security consultant and a six year cup of coffee in an Intelligent Video start up, convergence was a tool to be used, not a cause to be advanced.
    It makes sense for Cisco to advance the cause of Convergence because in the long term they will sell more hardware. However, in the world of VC funded start-ups, long term goals must defer to the short term goal of profitability. I remain a believer in the convergence of IT and physical security but have never spent my client’s or investor’s money to advance a cause.
    If we want the trend toward convergence to accelerate, we need to convince people to use the tool to advance their own goals. As an olde retired philosopher it’s time for me to spend some time looking for a way to help others to use IT tools for better security, more security, and more efficient security.
    Maurice Garoutte

  3. January 24, 2007 at 5:53 am

    Liz,
    I think you really hit on what is happening.
    Ironically enough – I had a successful exit (SightPath acquired by Cisco) and my last job at Cisco was a VoIP Security job. I figured that this was hedging my bet for my post-Cisco career. I could find a good opportunity in either IP Communications or in the IT Security space. When I took a survey of the market – I quickly realized that these spaces were over-invested (I think there are over 1000 privately funded IT security companies at this point) and that the opportunities were very limited for liquidity events.
    This forced me to open up my thinking and look for the next big area of investment —- what I found interesting was the current state of the physical security market. It is one of the few places that have not been touched by the internet/IT revolution. Most other operations, applications, etc. have gone through a transformation – not physical security. That is how I ended up at VidSys – a PSIM company focused on Convergence, Event and Video management.
    Now the thing I find in the market is that it is much like VoIP was 10 years ago –
    1) Many of the VC’s have not quite figured out how big the opportunity really could be – though this is changing and is not such a secret anymore.
    2) Many of the incumbents are in denial that convergence will happen (“these IP don’t know about carrier class reliability”) and that the IT revolution will come to the world of physical security.
    3) Many of the customers know they have problems but are not quite sure what they want for solutions and why they want them. There is an education process happening.
    One of the great things about the market is the spend it there – has always been there. The market dynamics are such that if you bring innovative technology and real value to the customers, you will be able to get money traditionally budgeted for incumbent products allocated to your products. This is a much better situation than having to create a market from the ground up.
    If you take the VoIP analogy one step further – we all know how that story played out – so people who have the vision to get on early will be the ones that benefit the most. Get on board – I did!

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