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Poisoning the Well: When Cybersecurity Startups Sell the Hype, Not the Product
- Lytical Ventures
- 2 hours ago
- 4 min read
Cyber Thoughts Newsletter
NOVEMBER 2025
Poisoning the Well
Something’s broken in cybersecurity venture capital. Too many startups are building to be acquired, not to solve problems.
But before we get into that, a confession: we’re East Coast investors. Yes, the kind who used to be mocked for caring about things like “revenues” and “profitability.” Now that our shameful secret is out, we hope you’ll let us explain.
East vs. West
Historically, West Coast VCs had a reputation for swinging for the fences while East Coasters were seen as the cautious ones counting receipts. In 2021, that made us boring. Then the bubble burst and suddenly we were geniuses. Today? Depends who you ask. Some say growth at all costs, some say…HOLD THE PRESS—This Just In. We’re Getting Word Of A Possible AI Bubble Developing Over Silicon Valley. You get the idea. The pendulum never stops swinging.
But let’s be honest, the cool kids have always been and will always be the ones who throw caution to the wind and invest in Clubhouse at a $4 billion valuation.
Still, Something Feels Off
Now that our coastal shame is out, maybe you’ll forgive us for saying the quiet part out loud: something feels broken in the security startup market.
Companies are getting acquired on hype alone. Before you go all “wait till they find out the moon isn’t made of cheese” on us yes, we know this isn’t new. But in cybersecurity, it kind of is. The goal isn’t sustainable revenue; it’s building just enough momentum to get swallowed by a platform giant.
Here’s how the game works:
A cybersecurity startup finds an underserved niche.
Gartner notices and creates a new category—think SOAR (Security Orchestration, Automation, and Response), CSPM (Cloud Security Posture Management), or UEBA (User and Entity Behavior Analytics).
Platform players notice they’re in the lower-left of a new Gartner quadrant. CISOs start asking about their roadmap.
Each platform races to buy a startup for 2–3x the last round, often outbidding the next investor.
The buyer pays a huge ARR multiple and issues a press release about “strategic alignment.” Overpaying becomes marketing.
When customers ask about the category, they’re told: “We just bought the top player. Integration coming soon.”
We’ll let you decide if it ever actually gets integrated.
Of course, there are exceptions, and to any corp dev folks reading this, your deal was definitely the exception.
Poisoning the Well: Israeli Edition
Israel’s rise in cybersecurity is a point of national pride—and rightly so. The country’s security services have become a global talent incubator. The only deals pricier than Bay Area startups are Israeli cybersecurity startups. That’s been a good thing… mostly.
Somewhere along the way, pride turned into reflex. “Buying local” became a badge of honor, sometimes even when the buyer had no real intention of using the product. Don’t believe us?
Two insider anecdotes:
A well-known cybersecurity VC told us he discounts the first $3M of Israeli startup revenue to zero. “It’s not real,” he said—it’s just friends and local buyers.
A major platform acquired an Israeli company with $9M in ARR. Within a year, most of it had evaporated. Turns out, customers hadn’t been using the product and post-acquisition, customers didn’t renew. That acquirer now refuses to buy any more Israeli startups; unless it’s forced to, of course, since many of its bake-off decisions now come from Israeli teams it acquired earlier.
We love and admire the Israeli ecosystem. But even the strongest markets can poison their own wells if loyalty replaces merit. If we, the cybersecurity ecosystem, want to protect companies from the bad guys, then we need to reward solving real problems—not just playing the game.
Final Thoughts
Real security doesn’t come from new acronyms or inflated ARR. It comes from solving hard problems, shipping products that customers actually need, and doing the unsexy things that get customers to renew. Hype is the poison; execution is the antidote.
If you appreciate our highlights and heresies, follow us on Twitter and LinkedIn, we post regularly about real things worthy of your attention.
What We're Reading
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Enabled by the introduction of its Willow quantum chip last year, Google today claims it's conducted breakthrough research that confirms it can create real-world applications for quantum computers.
A C.I.A. Secret Kept for 35 Years Is Found in the Smithsonian’s Vault
The drama surrounding this puzzle and the community trying to crack it comes to it’s final act. And there is EVEN MORE DRAMA!
The puzzle, a copper sculpture engraved with four coded messages, has fascinated professional and amateur cryptographers since 1990, when artist Jim Sanborn installed it at the CIA’s headquarters in Virginia.
New AI-Targeted Cloaking Attack Tricks AI Crawlers Into Citing Fake Info as Verified Facts
The idea is essentially simple, show humans one page and AI a different page containing misinformation. It’s a simple idea that could have massive real world consequences.
In the attack devised by AI security company SPLX, a bad actor can set up websites that serve different content to browsers and AI crawlers run by ChatGPT and Perplexity. The technique has been codenamed AI-targeted cloaking.
Transactions
Deals that caught our eye.
Veeam to Acquire Securiti AI; Unifies Data Resilience with DSPM, Privacy and AI Trust
$1.725 billion acquisition will help organizations understand, secure, recover, and unleash the value of all data for AI.
Podcasts
What we’re listening to.
Cory Doctorow Discusses Ensh*ttification with Lina M. Khan
Doctorow’s book, Ensh*ttification, argues that online platforms initially attract users and businesses with great services but then degrade the quality to extract more value for themselves, ultimately leading to their decline. Doctorow, in conversation with former FTC Chair Lina M. Khan, offers a diagnosis of how the internet “sucks now” and presents specific solutions to “disenshittify” the digital world.
About Lytical
Lytical Ventures is a New York City-based venture firm investing in Corporate Intelligence, comprising cybersecurity, data analytics, and artificial intelligence. Lytical’s professionals have decades of experience in direct investing generally and in Corporate Intelligence specifically.