Milwaukee-based cybersecurity startup Deeplight Systems is going out of business.
The company launched in 2017 to provide network and computer security services for Internet of Things manufacturers, especially those based in Wisconsin.
However, a lack of early-stage funding made it difficult to break into a risk-driven and heavily saturated industry, said chief executive officer Sam Aten.
"As a lot of people in Milwaukee are aware, there isn't a lot of early stage capital, especially for risky industries like cyber security," Aten said. "It's so hotly contested and as an investor, if you don't know anything about the space, you'd be taking a massive risk trying to invest in that space."
Deeplight Systems graduated in spring 2018 from Milwaukee-based gener8tor's gBETA program with its first product: a data aggregation tool that worked to proactively prevent security breaches and hacker interference to keep business information safe.
The company later that year participatedin the fourth cohort of the Midwest Energy Research Consortium’s WERCBench Labs accelerator, which allowed it to raise some capital in the form of grants and royalty-based financing, Aten said.
During that program, Aten and partners Bob Desaunoi and Kyle Puckhaber interviewed 75 area companies, ranging from larger firms such as Northwestern Mutual to small businesses, including a hair salon that had been the victim of a large-scale cybersecurity attack.
"It made us understand that there is nothing in this space for small and medium businesses at all-- we found there's almost nothing for their cybersecurity problems," he said. "We found that because it's all sales based-- all the major product developers and sellers in this space focus on selling strictly to Fortune 1,000 or Fortune 100 companies."
But the company was unable to build an affordable pricing model for those companies that were in most need of its services.
"In order to make it affordable we'd have to have a ludicrous number of small business as customers and that would require a lot of sales expertise and scalability that we didn't have," Aten said. "We also didn't have the technical expertise due to a lack of funding."
Deeplight also participated in the third season of entrepreneurship pitch television show “Project Pitch It,” earning a $10,000 cash prize.
Despite its efforts to take off, Deeplight decided to revaluate its path in late May and last week formally announced it would officially shut down.
Drawing on his experience over the past two years, Aten touted Wisconsin's cybersecurity education efforts, led by Waukesha County Technical College, and said those students should feel empowered to start their own companies.
He also encouraged startups to stay in Wisconsin, saying it will help push for more local early stage funding or micro investment sources down the road.
"Every time a company leaves to be successful, they're not teaching people here, especially the investment company, that they deserve to be invested in because they're going to find the money elsewhere. That means whatever flaws and fears that people found in that company are probably unwarranted...," Aten said. "In a place like Milwaukee, investors are struggling to write pre-revenue checks for companies that are at a risky stage that need an exploratory fund in order to meet the metrics to be successful. That's not a problem at all out west or out east."