Venture funding for cybersecurity dropped to just slightly more than $1.6 billion in the just completed second quarter — a 63 percent drop from the same quarter last year when startups saw nearly $4.3 billion, Crunchbase said Tuesday.

The number marks its lowest point since the last quarter of 2019, when startups raised just under $1.6 billion, according to the report.

“In 2021, venture funding in the red-hot cybersecurity market topped $23 billion. Two years later, it seems like a security startup will be lucky to raise just one-third of that,” said the report.

The numbers for the first half of the year are also a stark contrast to just one year ago.

For the first six months this year, cyber startups raised only $4.3 billion, a drop of 60 percent from the $10.8 billion raised in the first half last year.

It also is more than $2 billion less than the $6.4 billion raised in the second half of 2022.

These numbers are just the latest reminder of how dramatically the venture capital environment has changed in just 24 months, said Crunchbase.

In 2021, companies of all shapes and sizes were able to raise — early, middle or late — large growth rounds seemingly at will.

“The market has now shifted as private investors copied their public counterparts and are looking for companies that can get to at least cash-flow break-even quickly and efficiently,” said Crunchbase.

It said that has caused funding to significantly slow, as deal volumes and dollar amounts have plummeted in all sectors, although it is extremely stunning in the once high-flying cyber sector.

While most people focus on the money raised, the overall drop in deal volume is also drastic, according to the report.

The second quarter saw only 148 cybersecurity funding deals announced — a 35 percent drop from the 228 completed in the second quarter of 2022 and the lowest total in years.

In addition, only 312 deals were announced for the entire first half of the year, a 38 percent decline from the 507 deals announced in the first half of 2022.

“Perhaps the perfect illustration of both money and number of deals being down is looking at big rounds — those of $100 million or more,” said Crunchbase.

Through the first six months of last year, 33 cybersecurity rounds of $100 million or more were raised.

The first half of this year saw only 11, a 67 percent decline.

The second quarter of this year saw only five such rounds. In June, Maryland-based Blackpoint Cyber, which offers a security suite of products to managed service providers, raised a $190 million growth investment led by Bain Capital Tech Opportunities.

In April, McLean, Virginia-based ID.me, a digital identity network, was able to rake in a $132 million Series D led by Viking Global Investors.

Data security startup Cyera, cybersecurity unicorn Cybereason and Eagle Eye Networks all raised rounds of $100 million also last quarter.

“While the numbers are not dissimilar to the venture capital world in general right now, it is somewhat stunning that a sector always thought to be ‘recession proof’ or able to hold strong in a downturn has shifted so much,” said Crunchbase.

It said cybersecurity funding likely is feeling pain from both sides.

First, it said startups in the space certainly followed the “grow fast, go big” mantra of many other startups in other industries.

However, it said investors are backing away from that philosophy due to the current market favoring profitability.

It noted companies in the sector likely are also feeling the rollback in spending many of their customers are implementing as companies try to save money in an uncertain economy.

“Not all is lost in the sector by any means. Companies still need security, as it is not a luxury item. Ransomware attacks and hacks continue to be in the news, and companies will have to spend money on security even as IT budgets get tighter,” it said.

Artificial intelligence also may play a role in the sector — as it has in many others, according to Crunchbase.

It said security companies likely will look to AI to improve offerings, helping security operations run more efficiently.

It said cybersecurity also could play a role in making sure the data AI is using is not corrupted.

Finally, while funding is down, it said many of the largest public cyber companies such as Palo Alto Networks, Fortinet and CrowdStrike have seen big pops in their share prices since the beginning of the year.

It opined that could help spur on more merger and acquisition (M&A) in the sector — as large companies may be more willing to do stock deals if their share prices continue to increase.

It said seeing successful exits through M&A deals could cause venture capitals to again open the funding gates.

“Considering all of that, the second half of the year could be an interesting ride,” it said.

Cybersecurity is defined by the industries of network security, cloud security and cybersecurity, according to Crunchbase data.

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