In a sign of growing confidence in the cybersecurity business, investments in cyber companies rebounded in the third quarter, according to a new report today from DataTribe Inc.

For the quarter, a solid $1.2 billion was invested in cybersecurity companies across 70 deals, up from $790 million in 57 deals in the second quarter. The improved numbers were driven by seed and Series A deals, which saw increases of 67% and 47%, respectively.

There were 46 seed deals completed in the quarter, with a median deal size of $4 million, up slightly from $3.9 million in the previous quarter. Median pre-money valuations on seed deals grew by 26% quarter-over-year, to $17 million, surpassing a previous record high of $15.8 million in the fourth quarter of 2022.

Seed deals in the quarter ranged from $3.6 million to $45 million, with the top of the range dominated by startups using artificial intelligence and machine learning for cybersecurity. Series A deals ranged from $16 million to $75 million, with artificial intelligence- and machine learning-driven cybersecurity companies also raising the highest amounts.

Although there were positive signs of recovery in earlier stage deals, the momentum peters out at Series B, with only two Series B deals in the quarter, consistent with the previous quarter. Late-stage growth capital, Series C and beyond, continued to trail behind previous years, with only 14 deals in the quarter, down 75% from 44 deals in the third quarter of last year.

“Despite venture capitalists having record levels of dry powder, there has been a noticeable shift in capital deployment,” the report notes. “Emphasis on supporting existing portfolio companies and a tighter focus on company fundamentals are tempering the cadence of new deals, particularly at growth stages.”

The report does note some positive signs when it comes to the broader market — such as the U.S. gross domestic product growing at 4.9% and unemployment remaining under 4% — but the same can’t be said for public equity markets. All major indices are below water in the third quarter, with the S&P 500 down over 2%. Private markets continued to lag the five-year average, with $73 billion invested across 5,200 deals through September.

“While the next couple of quarters may be tough as the macroeconomic factors play out, especially for current companies heading to their next financing round, it’s a moment to separate the cream, milk and curd and focus venture dollars on capitalizing the truly differentiated opportunities,” the report concludes. “We remain optimistic that the winners in this market will be transformational companies leading the charge into the next evolution of cybersecurity.”

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