The UK government and businesses are being urged to back the growth of a critical mass of cyber security startup companies.
Startup founder Alastair Paterson is behind an initiative known as the cyber flywheel, which aims to foster cyber security startups. The programme has won backing from the UK government which plans to host chief information security officers (CISOs), venture capital companies and startup ventures at a private meeting next month.
Paterson, the CEO and co-founder of Harmonic Security, said that that the aim of the cyber flywheel is to create a cyber security ecosystem that has enough momentum to carry on growing. He pointed to the startup culture elsewhere, such as cyber security hotspot Israel, where startups grow, get funding and then exit, leaving experienced founders who are able to back and support the next generation of startups.
Why UK startups should tap US markets
He says that the UK is well-placed to grow its cyber security startups, with highly skilled people and founders with good ideas. Where the UK struggles is in helping startups scale to become high-value companies that attract significant buyers or IPOs, according to Paterson.
Darktrace was valued at £1.7bn when it made its Initial Public Offering in 2013. Over the past five years, only a handful cyber security startups have made exits with valuations of over £100m, said Paterson.
Paterson co-founded his first start up Digital Shadows in 2011. He was CEO from 2011 until its acquisition by ReliaQuest/KKR for $160m in July 2022. He said too many startups “hang around” in the UK too long before moving to the US to find backing and access to bigger markets.
“We are almost hampered by having a mid-sized market where you can hang out for a while before you move to the US – and by the time you get there, Israel and the US are already well established,” he added.
“The goal is to make every conversation worthwhile, so its either a founder, an investor or a buyer in the room”
Alastair Paterson, Harmonic Security
If UK startups don’t win the US, they don’t win the market, “so you end up with a bunch of regional players in the UK that get acquired instead of becoming global successes”, said Paterson.
Paterson aims to change this dynamic. The first cyber flywheel event at the National Theater in October last year attracted 20 founders, 25 venture capital funders and 20 CISOs, who were able to meet informally and discuss collaborations.
“Several startup founders messaged me afterwards saying that they’d made genuine connections out of it that are leading to opportunities with investors and with design partners. So there was a lot enthusiasm out of the founding community,” he said.
Networking has continued through a WhasApp group that is helping to link cyber startups with investors and design partners.
Open letter to government
The meeting led to 65 participants signing an open letter sent to government ministers, calling for the UK government to create better conditions for UK startups.
It calls for UK government departments to buy more from startups, not just established big companies, better access for cyber startups to the resources of government’s National Cyber Security Centre (NCSC), targeted tax breaks and more government spending on novel technologies.
Although tax breaks may not yet be on the political agenda, the Foreign, Commonwealth & Development Office (FCDO) has agreed to host the next cyber flywheel event in April. This time, Paterson hopes to get more CISOs into the room who might be interested in forming design partnerships with cyber security startups.
“The goal is to make every conversation worthwhile, so its either a founder, an investor or a buyer in the room,” he said, adding that there will be no salespeople so entrepreneurs will be able to have more authentic conversations.
His plea is for business, government and ordinary people to celebrate success, growth and entrepreneurship more. “There is a bit of that going on with the current government, but we have to shift into a growth mindset as a nation,” he concluded.
