After a record-breaking year for cyber funding, investor interest in the space is shifting again.
The global cybersecurity market continues to grow at an incredible pace. Valued at $299.6 billion in 2024, the market is projected to surpass $640 billion by 2033. There are a number of drivers helping to boost demand for cybersecurity solutions, in addition to paving a solid growth runway for companies in the space.
These include a growing range of sophisticated threats combined with the number of successful, high-profile cyberattacks across industries. Meanwhile, a limited pool of cybersecurity experts worldwide coupled with corporate budget constraints means that interest in innovative defense solutions is at an all-time high.
As digital innovation reshapes what corporate defense really means, startups focused on AI-driven security operations, cloud-native application protection (CNAPP), zero-trust frameworks, and data privacy and compliance tools have drawn the highest valuations and lion's share of new investment in cybersecurity to date.
These solutions address the latest defense requirements for a modern digital infrastructure, but one area in particular risks causing a worrying chink in the armor.
Despite efforts to build software that can reliably verify and authorize legitimate user access to an organization's network, hackers continue to exploit this vulnerability. In fact, stolen credentials are responsible for 88% of web app breaches. Given that the average cost of a data breach in 2025 is $4.4 million, time is of the essence to address this unmet need.
Amid general growth for the cybersecurity segment, companies with innovative digital identity solutions may prove to offer some of the largest returns in the year ahead.
Let's take a closer look at the emerging trends expected to have a strong influence on investment opportunities in 2026.
Follow the capital: Venture doubles down on AI-powered security platforms
The cybersecurity sector is closing 2025 with extremely solid momentum that we can expect will continue into the new year. Despite ongoing market turbulence, the sector had its strongest performance in three years, with global cybersecurity venture funding at $4.9 billion in Q2'25 alone.
A collection of high-value deals played a big hand in these funding figures. AI-powered data security platform Cyera secured $540 million, cloud security provider Cato Networks closed a $359 million round, and identity verification and management firm Persona raised $200 million.
While cybersecurity remains a hot area with VC firms in general, these standout deals highlight the specific areas with the strongest levels of interest. As such, we can follow the capital to build a picture of predicted growth for 2026.
This surge in VC interest reflects a broader trend in which organizational leaders realize that traditional security protocols are reaching obsolescence. On one hand, the scale and sophistication of modern threats demand equally innovative solutions. On the other, ongoing digital transformation makes the task of building solid defenses much more difficult.
The impact of AI may have been over exaggerated in some industries, but cybersecurity is one place where we can find a clear and immediate use case for the technology.
"Risk management decisions are guided by actionable live data, not outdated reports. This isn't about tools—it's about a new operating model that is efficient, resilient, and optimized," explained Shlomo Kramer, co-founder and CEO at Cato Networks.
The need for AI-powered defense solutions has already paved the way for AI in cybersecurity to become its own mega-segment. Grand View Research estimated the global AI in cybersecurity market size at $25.35 billion in 2024 and is projected to reach $93.75 billion by 2030, growing at a CAGR of 24.4% from 2025 to 2030.
To avoid a costly and catastrophic data breach, the capabilities of AI can't be ignored here. Added Nic Adams, CEO of 0rcus, “Security teams should treat every alert as confirmation of active exploitation, not a hypothetical risk. If your control layer can be accessed without physical proximity, isolated network design, and verified authentication, it is functionally compromised.”
The increasing frequency and complexity of cyber threats, along with the seamless integration of AI technologies with existing cybersecurity frameworks, suggest we will see continued growth opportunities well into 2026.
Identity exposure management emerges as a growth lane
Next, the pressing need for more robust solutions to authenticate user access has given way to an entirely new growth lane within cybersecurity.
Identity and Access Management (IAM) held the largest slice of the security software market in 2024, commanding 23% of the total share. Reflecting that momentum, Finro Financial Consulting's 2025 report shows IAM firms commanding some of the highest valuations in cybersecurity, with acquisitions averaging 12.6x annual revenue, underscoring strong investor confidence in identity-centric security models.
One of the most compelling sub sectors within IAM that is gaining investor momentum is exposure management. After a decade of reactive cybersecurity spending on SIEMs, EDR, and XDR, exposure management directly addresses the "proactive gap": finding, validating, and remediating risks before an incident occurs. Norman Menz, CEO of Flare, noted that "exposure management has the same recurring profile as endpoint protection did in 2016, but with higher enterprise stickiness."
The exposure management market is projected to grow from $2.2 billion in 2024 to $7.6 billion by 2029 at a 28.3% CAGR. Some forecasts push it even further, BIS research predicting it will clock in at $23.6 billion by 2034.
That trajectory mirrors a broader shift toward an emerging pillar within exposure management: identity-first security. Statistics reveal that 78% of organizations plan to increase spending on identity security this year alone, with IAM as a whole typically accounting for 20% or more of IT security budgets.
Why this matters for investors
For investors seeking to build a diversified cybersecurity portfolio, now is the time to broaden profiles not only to established segments like AI and cloud security but also to exposure management, and more specifically, identity exposure management (IEM).
The use of stolen customer data in social engineering attacks is a growing issue that is costing organizations millions. Eric Barak, CEO of Mind, a data loss prevention startup, raised more than it initially aimed for in a Series A round, telling Axios, “The demand was so high due to the increase in AI and insider threats.”
Charlie Sander, CEO of Managed Methods, sees a similar issue in K-12 security. "A cloud account takeover has the potential to do a lot of damage in a school district. When a criminal gains access to an internal account, it makes their activity look like legitimate and much harder to detect. Criminals have been able to divert district payments meant for vendors to their own bank accounts."
Incorporating companies and startups innovating in data loss prevention, threat exposure, and identity exposure management provides an opportunity to capture outsized returns from a critical yet evolving niche. Forrester’s 2025 study, as showcased by Flare, reported a 321% ROI on identity exposure management investments, reinforcing the financial and operational value of investing in advanced IEM capabilities.
Cybersecurity remains one of the most resilient and rapidly growing sectors in tech investing. As digital transformation deepens and credential-based attacks surge, investors should look closely at how IEM technologies are redefining cyber resilience. Strategic investment in this space, alongside AI and cloud security, can provide robust growth potential while addressing some of today’s most pressing cybersecurity challenges.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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