“This stuff is really hard, and unless you know the difference, it’s easy to invest in things that are not well-differentiated,” Mr. Ackerman said.
How the industry’s later-stage companies perform in the public markets could also affect private fundraising. This year saw a dearth of cybersecurity IPOs, and investors are closely watching the likes of Okta, ForeScout and Carbon Black, all of whom have signaled they are considering public offerings in 2017.
Also looming large is how the Trump administration, as well as unforeseeable world events, may affect security trends. Venture investors said the president-elect’s muscular talk on security could translate into a boon for the industry.
“I think that you’re going to see an increase in government security spending,” said Enrique Salem, a managing director at Bain Capital Ventures. “It’s hard to imagine any way you wouldn’t, given the amount of attention it’s getting.”
But there’s a question as to how easily startups could take advantage of such government spending. Startups often have struggled to bring on federal agencies as customers because the lengthy process puts a strain on small sales teams. The Obama administration used programs such as the Pentagon’s DIUx initiative to help bridge the divide. It is unclear how the new administration will treat that issue.
Apart from federal spending on cybersecurity, investors say there are many new security concerns that startups are uniquely poised to take on. Several say they are closely watching platforms addressing new attack vectors, such as those that might affect the Internet of Things.
Others predict 2017 will be the year that automation makes significant strides in cybersecurity. Investors say they’re looking to make bets on software that could augment the limited number security professionals, who are in high demand and command high salaries.
Mr. Ackerman said that certain companies with very differentiated approaches will succeed in 2017 as cyberthreats grow and enterprises continue to increase spending on products. However he noted that beyond high-end financial service providers, many IT managers want security programs that are more integrated, and some companies may struggle in that new reality.
“It will be a tale of two markets,” he said.
Write to Cat Zakrzewski at email@example.com