Hamza Fodderwala: The future of cybersecurity — 2024 retrospective, 2025 predictions and what founders need to know
Dec 29, 2024
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Hamza Fodderwala, Executive Director at Morgan Stanley, specializes in cybersecurity equity coverage. He discusses major buying patterns for 2024 and trends for 2025, underscoring the impact of Generative AI on security solutions. The conversation covers the booming M&A landscape, with over $50B in deal volume, and highlights key private companies poised for IPOs. Hamza offers valuable advice for founders on disrupting markets, navigating venture funding, and building resilience in an evolving cybersecurity industry.
The cybersecurity market is shifting towards vendor consolidation, as enterprises prefer fewer, multi-product solutions to manage complexity.
The rise of AI in cybersecurity influences product adoption while raising the need for securing AI models and automation of security operations.
Founders are advised to innovate in emerging areas like AI security while building strong partnerships with resellers and MSSPs for growth.
Deep dives
Current Trends in Cybersecurity Buying Patterns
The podcast discusses major trends influencing customer buying patterns in the cybersecurity sector, highlighting a strong inclination towards vendor consolidation. Publicly traded cybersecurity companies that offer multiple products, such as Palo Alto Networks and CrowdStrike, currently enjoy higher valuation multiples, reflecting a market preference for consolidated vendors. As enterprises grapple with complexity, many are seeking to reduce the number of cybersecurity tools from hundreds to a more manageable number. Additionally, the rise of AI and its application in cybersecurity, particularly for securing AI models and automating security operations, indicates an evolving landscape in which organizations are beginning to invest.
The Role of Channel Partners in Cybersecurity
The importance of channel partners, particularly resellers and Managed Security Service Providers (MSSPs), is underscored as they generate significant revenue for cybersecurity vendors. Resellers not only facilitate sales but also help customers operationalize complex cybersecurity technologies effectively. Startups are encouraged to engage with these partners early in their journey to leverage their capabilities and build strong relationships. With ongoing consolidation within the reseller market, having reliable partnerships is crucial for startups aiming for growth and sustainability in the competitive cybersecurity ecosystem.
Public Market Dynamics and Cybersecurity IPOs
The podcast surveys the state of public equity markets for cybersecurity companies, noting that while there has been a revival in public market interest, it remains selective. Companies demonstrating strong growth and significant annual recurring revenue (ARR) are more likely to attract investment and open up new IPO opportunities. Analysts indicate a preference for companies with ARR between $250 million and $500 million, particularly those demonstrating healthy growth and a path to profitability. As the market evolves, firms fitting this profile may find themselves better positioned to take advantage of favorable conditions for public offerings.
Navigating Regulatory Changes and Geopolitical Risks
The podcast examines how upcoming changes in U.S. government administration may potentially impact federal cybersecurity spending and regulatory landscapes. With a shift towards reducing government size, there are concerns about potential budget cuts affecting cybersecurity vendors heavily reliant on public sector contracts. Regulatory processes around cybersecurity practices and reporting may also see a shift, impacting the demand for related services. Consequently, the cybersecurity industry may face challenges, but it also might open avenues for adaptive solutions in response to emerging regulations and geopolitical threats.
Opportunities for Founders in Cybersecurity
Founders in the cybersecurity space are urged to focus on both solving emerging problems, such as AI security, and revitalizing existing segments with renewed innovation, such as email security. While the podcast emphasizes the current investing environment that acknowledges the need for AI governance and resilience, it also suggests that many traditional areas have been overlooked. The bar for engagement with channel partners, MSSPs, and other industry players is set higher, causing startups to adapt and integrate these insights early in their development stages. Founders are encouraged to harness the power of generative AI and look toward opportunities in cyber resilience and beyond to ensure sustainable growth amidst this dynamic landscape.
In this holiday episode special, we’re joined by Hamza Fodderwala, Executive Director at Morgan Stanley, where he leads cybersecurity equity coverage. He joined Morgan Stanley's software research team in early 2016 and leads coverage for public cybersecurity companies like Palo Alto Networks, CrowdStrike, Fortinet, SentinelOne, Okta, Zscaler, Cloudflare, Rapid7, Check Point, Qualys, Varonis and Tenable. Before Morgan Stanley, Hamza was an equity research associate at Susquehanna International Group covering the financial technology sector. Hamza graduated from New York University, with a Bachelor of Arts in Economics.
We dive into Hamza’s insights on the major customer buying patterns in cybersecurity throughout 2024 and what might shift in 2025. Hamza shares his observations on how the Generative AI boom is influencing product adoption in the industry, and whether enterprises are currently adopting AI security solutions. Additionally, we explore key trends from cybersecurity resellers, discuss what might unlock public equity markets for new IPOs, and which private cyber companies could go public next.
Our discussion covers the cybersecurity M&A landscape, highlighting over $50B in deal volume this year with companies like Juniper, Darktrace, Recorded Future, Synopsys, Venafi, and more all getting acquired. Finally, Hamza shares lessons for founders, offering advice on identifying areas ripe for disruption, navigating the venture funding landscape, and building resilience in a competitive industry.
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