UK cyber security startups are on track to break the funding record set in 2019, with £521 million invested in the sector amid the COVID-19 downturn.

Research compiled by the London Office For Rapid Cyber Security Advancement (LORCA) found that the £496 million of investment pouring into the UK’s cyber security startups is set to top the 2019 record in just six months.

The figures show that British cyber security startups have defied the economic downturn caused by the pandemic, raising £104 million in the first two months of lockdown alone, showing a 940 per cent increase on the same period in 2019.

This increase starkly contrasts with the broader startup economy, which saw investment levels halve compared with last year.

However, the analysis also showed that the economic pressures of the Coronavirus have widened the early stage funding gap, with the lion’s share of the money going to more mature companies, with those at the seed and venture stages securing only six per cent of investment in cyber startups since the start of the year.

Less than one per cent (£900,000) of the money invested in cyber security startups during lockdown was received by firms securing first-time funding, highlighting the growing focus placed by investors on growth stage cyber companies.

The number of deals across cyber startups at the seed and venture stages fell from 52 in 2018 (worth £91 million) to 39 (worth £53 million) in 2019, with only 21 in 2020 so far (worth £30 million).

The research also found that almost half (46 per cent) of cyber startups incorporated between 2014 and 2015 remain at the seed stage, higher than FinTech (33 per cent) or artificial intelligence (41 per cent).

LORCA, the government-backed cybersecurity programme delivered by the innovation centre Plexal, in partnership with the Centre for Secure Information Technologies at Queen’s University Belfast and Deloitte, produced the report in partnership with Beauhurst, a UK database for high-growth companies.

The research showed that London is the cyber capital of the UK, with 281 startups (44 per cent), while Edinburgh and Manchester are also developing prominent cyber clusters.

Digital infrastructure minister Matt Warman said: "The tech sector will play a vital role powering an economic recovery out of the pandemic and the cyber security industry plays an important role keeping people safe online.

"We are backing our innovative firms to develop cutting-edge solutions and keep one step ahead of tomorrow’s security threats through our National Cyber Security Strategy."

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