Fueled by demand for artificial intelligence, cybersecurity startups are raising funds at a record pace, as investors compete for equity in a booming market.

Already awash in capital, cyber startups pulled in roughly $5.26 billion globally in the third quarter, nearly double the previous quarter and a 78% increase from the same period last year, according to executive recruitment and research firm Pinpoint Search Group. The third quarter marked the strongest single quarter for fundraising since 2022.

By the end of September, total funding tallies this year climbed to $12.7 billion, the highest January through September total since Pinpoint began tracking cyber startups in May 2020.

Investment activity was concentrated in segments such as AI-enabled tools; identity; security services; fraud; and governance, risk and compliance.

"Cybersecurity has been disrupted, and to an extent, redefined by AI," said Mark Sasson, co-founder and managing partner at Pinpoint. Startups and their investors, he said, are racing to capture a fast-moving market and "that race creates momentum."

The bulk of that cash flowed to established startups with previous funding rounds and more developed products, Sasson said. Seventeen of 104 funding rounds tracked in the third quarter came in at $100 million or more, accounting for 68% of total disclosed funding and the second-highest count since 2020, the firm said.

Last month, late-stage AI cyber startups Island and Cyera each disclosed $400 million in new funding. Cyera had raised $600 million in a Series G round in June.

Armadin, an AI cyber startup launched by Mandiant founder Kevin Mandia, last week disclosed a $255.5 million Series B funding round.

More nascent startups are also drawing bumper checks. There were a total of 62 seed and Series A rounds in the third quarter, accounting for a combined $1.16 billion, according to Pinpoint.

In March, JetStream Security launched its AI governance platform with a $34 million debut round. In June, cyber startup Ent emerged from stealth with $100 million in seed funding, and AI-native startup Oak followed with a $60 million debut round in July.

Seth Spergel, a managing partner at cybersecurity investor Merlin Ventures, said much of the momentum this year springs from the emergence of frontier AI models capable of detecting security vulnerabilities at lightning speeds.

"Suddenly the market woke up to the understanding that AI could generate massive cyber risks to organizations, and the only way to protect against that risk was with AI-native cybersecurity products," Spergel said.