Early-stage cybersecurity startups are outfunding their later-stage rivals for the first time in more than a decade, driven by surging demand for next-generation smart defenses against hackers armed with artificial intelligence.

As of September, early-stage investing this year in global cyber startups, spanning seed to Series B funding rounds, hit a combined deal value of $4.7 billion this year. That total easily blows past 2025's full-year total of $3.8 billion and puts the market on track to roughly double the funding it raised in 2024, according to PitchBook. The feverish interest marks a sharp reversal from just two years ago, when the lion's share of investor cash went to more established players.

The capital surge comes even as the overall number of deals for early-stage cyber startups dropped to 248, down from 358 last year, PitchBook said.

So far this year, total deal value for late-stage cyber startups is just above $4 billion, the firm said. Later-stage startups typically operate with proven products and established customer bases across multiple financing rounds, whereas early-stage firms often lack finished software or a substantial market presence.

To be sure, later-stage startups continue to land the biggest single checks, including a $600 million Series G in June and a $400 million extension by data-security company Cyera, announced Tuesday.

However, recent wins by newer companies continue to raise eyebrows. In July, AI-native cybersecurity startup Oak emerged from stealth with a $60 million seed round, dwarfing the typical $3 million to $4 million raised by nascent startups in other sectors. A few months earlier, JetStream Security launched its AI governance platform in March with $34 million in initial funding.

In some cases, debt instruments have also proved lucrative alongside bumper equity investments. Earlier this month, Cylake, an AI-native cybersecurity startup, disclosed a $245 million capital injection through a convertible note, roughly six months after raising $45 million in a seed round-all ahead of its beta release.

Beyond a handful of towering deals, new cyber startups across the board are also landing larger investments, according to private-market intelligence firm CB Insights. Average disclosed seed rounds from cyber startups rose 52% year over year, from $5.54 million in the first nine months of 2025 to $8.43 million over the same period.

AI and AI-enabled agents are driving the increase, said Ahad Ali, a CB Insights emerging technology analyst. "Agentic security is still in its formative stage and is essentially a land-grab," Ali said.

Among other issues, he said, the rapid growth of AI agents at companies outside the tech sector has created a nonhuman identity, governance, and control problem that needs to be solved before widespread adoption.

"We have seen very strong interest in startup opportunities in areas such as agentic security operations centers, agentic identity security and more," said Fernando Montenegro, vice president and practice lead for cybersecurity and resilience at The Futurum Group, a tech advisory, research and intelligence firm.

Montenegro said the immediacy around AI-and the sheer number of competitors in the market-means startups need capital early on to accelerate development. "These are areas where the funds from these investment rounds can be incredibly helpful," he said.

Melinda Marks, cybersecurity practice director at research and advisory firm Omdia, said cloud adoption triggered a similar investor frenzy. Yet, market observers warn that front-loading capital creates severe valuation risks.

"My worry is there is a huge drop-off of cyber companies raising their B rounds and building real companies," said Stephen Ward, founder and managing partner at Brightmind Partners, an early-stage fund focused on cyber startups.

Many startups striking outsize seed deals are unlikely to follow a more traditional path of raising growth funds in later-stage rounds, and eventually a public-market listing, Ward said. Instead, he expects to see a quick sale, "often to a buyer that is not a security company."

CB Insights' analyst Ali said the outcome for these companies often results in "acquisition or closing down in the next few years."

He warned that inflated early valuations set growth expectations many young startups can't meet before their money runs out.

One way to hedge against that risk is to back early-stage startups whose founders already have a proven record. "For those founders that can deliver on go-to-market, VCs are pricing these rounds as if they were for later-stage deals," said Seth Spergel, managing partner at early-stage cyber startup investor Merlin Ventures.

Nir Zuk, Cylake's co-founder and chief executive, co-founded Palo Alto Networks in 2005 and served as its chief technology officer until last year.

In March, Armadin, an AI-powered cyber startup launched by Mandiant founder Kevin Mandia, raised a record-breaking $189.9 million in combined Seed and Series A funding. Alphabet's Google acquired Mandiant in 2022 for $5.4 billion.

Ent, an endpoint security startup that emerged from stealth in June with $100 million in seed funding, was co-founded by the same team that built RiskIQ, a cybersecurity firm Microsoft acquired in 2021.

"As the cost to build a product drops, the value of being able to take a product to market becomes exponentially more important," Spergel said. "Founders who can show a record of doing that are able to command these new valuations," he said.