In the third quarter, there was a significant increase in funding for cybersecurity, totaling $1.2 billion across 70 deals.

In a sign of growing confidence in the cybersecurity business, investments in cyber companies rebounded in the third quarter, according to a new report today from DataTribe Inc.

In the past quarter, a substantial $1.2 billion was invested in cybersecurity companies through 70 deals, marking a notable increase from the second quarter’s $790 million across 57 deals. The positive shift was mainly fueled by growth in seed and Series A deals, which saw respective upticks of 67% and 47%.

During the quarter, there were 46 seed deals with a median size of $4 million, a slight increase from the previous quarter’s $3.9 million. Median pre-money valuations for seed deals grew by 26% year-over-year, reaching $17 million, surpassing the previous record high of $15.8 million in the fourth quarter of 2022.

Seed deals in the quarter ranged from $3.6 million to $45 million, with startups leveraging artificial intelligence and machine learning for cybersecurity dominating the top end of the range. Series A deals varied from $16 million to $75 million, with the highest amounts also raised by companies in the artificial intelligence- and machine learning-driven cybersecurity space.

Despite positive signs in earlier stage deals, Series B showed less momentum with only two deals in the quarter, consistent with the previous quarter.

Late-stage growth capital, encompassing Series C and beyond, continued to lag behind previous years, with only 14 deals in the quarter, down 75% from 44 deals in the third quarter of the previous year.

The report highlights a shift in capital deployment among venture capitalists, emphasizing support for existing portfolio companies and a tighter focus on company fundamentals, which is affecting the pace of new deals, particularly at growth stages.

While there are positive indicators in the broader market, such as the U.S. gross domestic product growing at 4.9% and unemployment staying under 4%, the public equity markets are experiencing challenges, with major indices down over 2% in the third quarter.

Private markets also trail the five-year average, with $73 billion invested across 5,200 deals through September.

The report acknowledges potential challenges in the coming quarters as macroeconomic factors unfold. However, it emphasizes the importance of focusing venture dollars on truly differentiated opportunities, expressing optimism that the market winners will be transformative companies leading the charge in the next evolution of cybersecurity.