Good day. The stock market’s cave-in, sparked by President Trump’s on-again-off-again tariff policies, now makes the closing months of 2024 seem like a bygone era. Back then, analysts warmed hopes that lower interest rates and a lighter regulatory agenda would usher in a dealmaking renaissance in the year ahead. The outlook for cybersecurity startups was especially bright.

Houlihan Lokey, for instance, in the fourth quarter predicted an improving M&A market for cyber startups this year, driven by a bigger volume of deals in the $300 million-plus range. More recently, PitchBook just last month said cybersecurity “remains a high-performing vertical with strong investor interest,” pointing to the $3.5 billion in venture-capital funding for cyber startups across North America and Europe in the fourth quarter, up 44.4% from the previous three months. Indeed, within days of PitchBook’s assessment, Google parent Alphabet agreed to acquire Wiz for $32 billion, signaling good times ahead.

Today, with a trade war and possible recession on the horizon, the outlook is far less rosy. How bad is it? We put the question to Ankur Singla, chief executive and co-founder of cyber startup Exaforce, which recently announced an outlier $75 million Series A raise. Edited excerpts below.

WSJ Pro: What was the mood like in the cyber startup market in Q4? What is it like now?

Singla: In Q4 '24, the cybersecurity startup market was robust in multiple areas, especially at the nexus of applications, data and AI. Nothing much has changed yet, but current uncertainty in the market may lead to some slowdown in enterprise spend and this will directly impact cybersecurity, as it is usually considered a cost center. Information technology during slowdowns shifts towards automation and cost reduction, and this will lead to further adoption of AI services.

WSJ Pro: In what way are cyber startups hit differently by the current economic climate, compared to startups in other sectors?

Singla: In an environment where enterprise spending slows down, startups that don’t directly help with immediate CISO and CIO priorities struggle. If the market continues to slow down, CISO priorities for the rest of the year will rapidly shift to improving resilience by increasing automation while reducing costs. Technology startups that are not aligned to these initiatives will suffer.

WSJ Pro: How are VC investors in cyber startups reacting to tariffs and economic uncertainty? How has that changed the dynamic between founders and investors?

Singla: While most VCs take a long-term view on investing, they will definitely put more emphasis on investing in ideas that align to direct budget priorities. Having been through multiple cycles, I do see that founders will have to adjust to reality and will have to get sharper on their product market fit, their capital raise and valuations.

WSJ Pro: Any advice for cybersecurity startups and their investors?

Singla: My belief is that cybersecurity is an evergreen market, both for entrepreneurs and investors, given the constant change in the adversary and technology landscape. As AI adoption continues to advance, adversaries will continue to get more capabilities to exploit an ever-expanding attack surface. This will lead to newer and bigger attacks that will need better and smarter cyber capabilities. The key to getting ahead of this is more and more automation, and this should be the driving thesis for entrepreneurs and investors.

And now on to the news...

Private equity's tariff adjustment. New tariffs are driving private-equity firms and their portfolio companies to turn their attention to supply chains again, just a few years after the Covid-19 pandemic forced a widespread re-evaluation of how to source products, WSJ Pro reports.

• This time, however, the inability to nail down the specifics of U.S. trade policy makes long-term decisions on supply chains harder, which could drive private-equity managers to favor short-term workarounds, or else take a wait-and-see approach, according to industry lawyers and consultants.
   
• Back in 2020, most companies understood the need to invest to make their supply chains more robust, especially by shifting Asian operations to the U.S. or closer locations such as Mexico, said Kevin Desai, private-equity specialist and deputy deals leader at consulting firm PricewaterhouseCoopers. With President Trump’s slaloming pronouncements on tariff rates, that clarity is absent.

Crypto is pushing deeper into the banking system, WSJ reports. A regulatory crackdown on crypto in the wake of the meltdown of FTX and two crypto-friendly banks prompted some in traditional finance to break up with the industry two years ago. Now President Trump’s pledge to make America a “bitcoin superpower” has set the stage for crypto to become more intertwined with the banking system. A host of crypto firms including Circle and BitGo plan to apply for bank charters or licenses, according to people familiar with the matter. Crypto exchange Coinbase Global and stablecoin company Paxos are considering similar moves, other people said.

When a startup called Orka Beverage Co. posted a photo of its new energy water on TikTok in 2023, some people seemed thirsty just for its unusual clear can. No matter what it tastes like, one TikTok user wrote in the comments, “that packaging is ♥ ️ ♥.” Little did they know Orka was still struggling to complete the packaging for mass production. A year after the TikTok post, founders Michael Moriarty and Nash Hale had nearly depleted the company’s bank account trying to keep their cans from falling off industrial canning lines or breaking apart. They raised $355,000 in a seed round funded primarily by friends and family to start developing a water imbued with caffeine and a sprinkling of natural flavors, disregarding the modern trend of adding extras like B vitamins or nootropics. Marketers are increasingly asking packaging to do work that advertising performed in the past, squeezed by the rising costs of online ads and motivated by the chance to go viral. Read the full story here.

Funds

Venture Guides closed its second fund with $262.5 million in commitments to continue investing in early-stage, infrastructure software companies. The Boston-based firm raised $216.5 million for its first fund.

TBD VC raised $35 million for a fund making pre-seed and seed investments in startups founded by Israeli entrepreneurs focusing on cybersecurity, enterprise software and infrastructure.

Blue Ocean Games launched a $30 million fund to make early-stage investments in game developers.

People

Andreessen Horowitz appointed Erik Torenberg as a general partner and acquired his podcast, Turpentine.

Electra.aero, a Manassas, Va.-based hybrid-electric aircraft manufacturer, scored $115 million in Series B funding. Prysm Capital led the round, with Managing Partner Jay Park joining the company’s board.

Ocient, a Chicago-headquartered data analytics software provider, added $42.1 million in Series B extension funding from new investors Allstate Strategic Ventures and Blue Bear Capital and others. The latest tranche brings the round total to $132 million.

UbiQD, a Los Alamos, N.M.-based quantum dot technology developer, closed a $20 million Series B round led by Phoenix Venture Partners.

ROH, a New York-based payments management platform for the hospitality industry, picked up a $9.2 million investment led by Highgate Technology Ventures and Acrew Capital. HTV’s Raja Goel and Kurien Jacob, along with Acrew’s John Gardner, will join the board.

Terra Security, an agentic AI platform for continuous web application penetration testing, landed $8 million in seed funding led by SYN Ventures and FXP Ventures. The company is based in New York and Tel Aviv.

OnePlanet Solar Recycling, a Jacksonville, Fla.-headquartered startup offering recycling services for solar projects, closed a $7 million seed round led by Khasma Capital.

Kenzo Security, an agentic security platform, emerged from stealth with $4.5 million in funding from investors including The General Partnership.

• FTC sues Uber, alleging deceptive billing, cancellation practices
   
• Justice Department urges tough action to break Google’s search dominance
   
• Why it’s so difficult for robots to make your Nike sneakers
   
• Go delete yourself from the internet. Seriously, here’s how.

• Venture capital is hurting innovation—but the indie startup era might save it (Fast Company)
   
• TBD VC unveils a $35 million venture fund to back Israeli deep tech startups (VentureBeat)

This newsletter was compiled by Marc Vartabedian and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley, Angus Loten and Marc Vartabedian.

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