Surprising findings from a new cybersecurity entrepreneurship survey

Today’s guest is responsible for much of the data that the D.C. region uses to define and understand what’s going on in the area with regards to cybersecurity and entrepreneurship, paving the way forward to building a stronger local economy. Professor Erran Carmel is with American University as director of its Center for Business in the Capitol, focusing on D.C.’s position in the cybersecurity ecosystem.

ABERMAN: You’ve got some news for us. You just finished another study, which is going to further increase our understanding of the cybersecurity industry. So, what are you up to?

CARMEL: So, we’ve been talking about the cybersecurity industry here in Washington for quite a number of years. It’s clear that Washington is one of the three major cybersecurity clusters of the world. There’s Silicon Valley, which is the undisputed number one. There’s Washington, and another third one is outside the United States—it’s in Israel.

But let’s talk about ours right here. So, we wanted to look at how closely the roots of the ecosystem of this cybersecurity cluster—the companies in our cluster here in Washington are rooted in the national security ecosystem. What do I mean by the national security system? Well, one is the government. It’s the intelligence services, it’s the military, the defense, and so on, Department of Homeland Security. The others are all the contracting firms—hundreds of them around the beltway—that serve our nation’s intelligence, defense and government.

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ABERMAN: So, when people have talked about this, the common statement is that, a lot of our cybersecurity businesses come out of national security, but you’ve got data now that actually shows how many do.

CARMEL: That’s right, and I’ll start with what I think is the most compelling statistic that we found, which is, when we look at the founders of these companies—so, some of these companies, these pure-play cybersecurity companies, some of them have one founder, some of them have two, a few of them have more than two.

So, when we looked at the founders of these companies, what we found is that, 72 percent of these companies, these pure-play cybersecurity companies in this region, came out of the national security ecosystem. So, again, the came out of either the government or military-slash-intelligence side, or they came out of the big ecosystem of contractors who serve the government. Seventy-two percent. So, the roots in this ecosystem of this region are very, very strong. And now, we have the data to support that.

ABERMAN: That is a really large number. It seems to me, though, that it also belies the idea that we don’t have entrepreneurs in this region. Because I understand from your data that you saw a particularly large percentage of people who actually started businesses before they started their most recent one.

CARMEL: That’s right. It’s actually a little bit larger than I expected. Of these companies, 35 percent of them had at least one serial entrepreneur in the company, and of the entire pool of all the founders—there’s 274 in our pool—26 percent of them are serial entrepreneurs. This is their second or third or fourth round. It’s very impressive. And that’s good! That means that this is a healthy ecosystem. That’s what you want in a healthy ecosystem.

ABERMAN: And that’s your area of study, you’ve come to cybersecurity as a way to understand industry, but your expertise is in industrial clusters, and my understanding is that, if you’re really trying to figure out if you have a good ecosystem to create new businesses that grow rapidly, you have to have a large number of serial entrepreneurs in the ecosystem. So, this is a big deal for us.

CARMEL: Yeah, it is. And we also some interesting cases, some people that, Jonathan, you know well, like Ron Gulas. So, after he founded a company, and did very well with it, he moved on to become a venture capitalist and to seed other companies, and that’s exactly what you want in a healthy ecosystem.

ABERMAN: What else did you find that you were really struck by?

CARMEL: One is local roots. Not entirely surprising, but I think it’s worth hearing, that 87 percent of the pure-play cybersecurity companies in this region have local roots. And that’s high. Eighty-eight percent of the verbs have founders who actually know something about cyber security, and that’s a high number.

ABERMAN: That’s a big deal, isn’t it? It’s funny, because it’s always struck me that you can start a light internet start up. You know, I kidded around and said “Facebook for cats,” you know. You don’t even have to understand technology, you can hire a CTO. But it doesn’t sound to me, from your data, that you can B.S. cybersecurity. You either know it or you don’t.

CARMEL: Yeah. We were talking about what happens, and we said 88 percent of the firms have at least one person with backgrounds in cyber, and we were really scratching our heads about the other 12 percent.

ABERMAN: I guess they’re good at emptying trash cans or something like that.

CARMEL: The other stat that you and I were talking about is the University as an incubator for innovation in cybersecurity. And, when you think about the classic technology cluster, which is Silicon Valley, there, the University that incubates so much of it is Stanford University. And that’s been the case for so many years. We don’t see that in cybersecurity. Only 13 percent of these companies here in this region have, in any way, been incubated by at least one of the founders at a university, in a job or a research center. So, only 13 percent, that means 87 percent have no university roots at all. In other words, the incubator for cybersecurity in this region is not the university R&D, but rather the national security ecosystem.

ABERMAN: That comports pretty closely with research I’ve done around where federal R&D dollars go, and a substantial majority don’t go to universities here, it goes to industry. So, one thing we haven’t talked about yet are the demographics of entrepreneurship here in the region. Did you see anything interesting with respect to women representation in entrepreneurship, or minority entrepreneurship?

CARMEL: Yeah, we did look at women, and we found that there were 22 firms that were founded by at least one woman. That’s 8 percent of the total. Well, it’s good that that’s the case, but it’s lower than the much larger data set of the benchmark values, the Techcrunch database, which has a very large number of entrepreneurial startups. And there, the numbers really are doubled, in terms of the numbers of startups that have at least one woman in them. And so, in cybersecurity in this region, we still have a little bit to go in terms of women’s participation.

ABERMAN: Cybersecurity is so engineering focused, and it sounds to me like this is footing very much into the whole issue with respect to women in engineering and the hard sciences.

CARMEL: That’s right.

ABERMAN: Good to know that you’re helping our region call balls and strikes, Erran, and this is a really useful report. Where can people find this online?

CARMEL: The American University Kogod School of Business website, the Center for Business in the Capitol, and we have our reports from this year and from last year up there.

ABERMAN: Thanks for taking the time, Erran. Folks, check out that report. Next time somebody tells you there’s not an industry, there is an industry. Cybersecurity is big and getting bigger.

CARMEL: Thanks.