How the Indian cybersecurity sector is poised to touch a pinnacle in the new normal: Investor Insights

The COVID-19 pandemic has ushered India into a new era of digitisation. However, there is a price to pay as well. A rise in the adoption of cloud platforms, digital payments, ecommerce, as well as internet users count reaching almost 700 million, has led to an increase in cyber threats for the country.

Recent data breaches in JustDial, Unacademy, JusPay, Dr Reddy’s, Lupin, Big Basket and BuyUCoin among others have put a question mark on the data security in India, and there have been calls to implement strict laws for cybersecurity. This in turn, has opened the gates to an uncharted and untouched opportunity - for Indian cybersecurity startups. 

As Anil Joshi, Managing Partner, Unicorn India Ventures indicates, India’s global leadership position in the IT services space, and availability of a large talent pool owing to top tech institutes in the country, has helped many domestic cybersecurity startups to emerge and flourish. 

At the same time, given the wealth of technology talent created by product companies such as Flipkart, Zoho, Amazon India etc., and through talent from IT services companies, India is well suited to create world class cybersecurity products for the world, opines Gautam Patel, Managing Partner, Z3 Partners.

Factors leading Indian cybersecurity on investor charts

The sizeable internet user base of the country makes India one of the largest consumers of the cybersecurity segment. Additionally, increased dependence of corporate houses on IT solutions during the pandemic has only added to the cybersecurity demand. 

Here are a few factors, that are adding to the worldwide growth of the Indian cybersecurity sector, with key insights from the investors we spoke to:

Rising digital transformation wave

As more businesses adopt digital first strategy with volumes of customer data being collected and stored, cybersecurity as a vertical is poised to grow faster than any predicted numbers. With growing digitisation and adoption of online commerce as well as work from home policies, India is expected to develop local solutions for their cybersecurity needs, and the same will be applicable for the world. The government too is keen on growing homegrown cybersecurity startups, and is working on a data privacy policy. From a macro perspective, the segment is at the cusp of explosive growth.

Being at an early-to-mid development stage

The cybersecurity space in India is still in its early-to-mid development stage, and hence, there is a lot of potential on both ends --startups offering cybersecurity solutions as well as enterprises looking to deploy such solutions.

As the quality and number of related product offerings from India improves, there is strong potential for Indian businesses to approach not only the developing markets, but also the developed markets. On the other hand, there is an increased push on digitisation of operations in India, resulting in an increase in consumption of cybersecurity products. This has provided a large, previously untapped market for cybersecurity product companies, and gives India an opportunity in the global platform.  

Rich availability of talent and rising entrepreneur count

The Aatmanirbhar Bharat and ‘Make in India’ campaigns have helped in creating a unique value proposition for Indian companies. Entrepreneurship in the country is on the upswing, and the availability of talent, coupled with constant upgradation of process and delivery models, while leveraging the next-gen technology stack, is creating a conducive environment for Indian companies to thrive and lead globally.

Competitive pricing

Traditionally, the Indian market has been an extremely cost sensitive market as compared to developed countries. The focus was always more on lower cost than on actual product differentiation. According to recent reports, cybercrimes are estimated to cost the economy a whopping $6 trillion in 2021, which is double the impact from 2015. While that figure sinks in, let’s consider the sheer size of the IT business in India, and the fact that three of the top 20 global IT firms are of Indian origin, while the rest have significant manpower presence in the country.

Moreover, Indian software developers have played a significant role in developing some of the world’s largest banking software, thus making them the correct set to understand and protect such systems. This makes India a global talent hub for cybersecurity, which is competitively priced as well as more open to evaluate a wide gamut of products which are being developed in India or in the global markets. 

Increased focus on building technology infrastructure

India is rapidly moving towards high consumption of digital data, digital payments, and software on the mobile device. Indian corporates have started using software on the cloud as it is more cost-effective and less reliant on hardware. This advancement of technology usage and mobile penetration in India is exposing India to cyber attacks, cyber threats, and increasing focus by hackers on India.

India needs to prepare immediately to safeguard its people, companies and government from this cyber threat, thus opening opportunities for the sector. Due to the increasing complexity of both - systems and cyber attacks, the investor community believes that emerging technologies such as predictive threat intelligence, behavioural analytics and blockchain will start seeing faster growth than some of the more traditional technologies.

Increasing government support

The Indian government is promoting the growth of startups in cybersecurity, and providing funds towards the development of cybersecurity infrastructure. In Budget 2020-21, the fund allocation for cybersecurity projects and promotion of IT and ITeS industries was increased to Rs 170 crore each from Rs 102 crore and Rs 90 crore respectively. This will give Indian cybersecurity startups the opportunity to grow and prosper, and test their products in the local market.

Rising geopolitical tension

With rising geopolitical tension between India and its neighbours, state-sponsored attacks have been on the rise. While digital adoption in India is breaking new ground, the corresponding cyber maturity is low, and has not kept pace with technological strides. All these factors are prompting more nations, especially India’s geopolitical foes, to partake in cyber warfare targeting India.

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Cybersecurity leaders: India vs other markets

According to the investors YourStory Media spoke with, currently, companies from the UK, Israel, MiddleEast and the US are giving India a tough fight in the cybersecurity segment. This is mainly because of their focus on building product-based solutions, which India has only just begun. Also, India is still in the first realm of data security, with enterprises and businesses still deploying end-point and other first-generation solutions.

For instance:

• India is a late entrant to digitisation and ecommerce, and India’s adoption to digitisation mainly happened through mobiles, which needs different solutions compared to web applications.
• Companies in India are now initiating digital transformation to move from an on-premise setup to the cloud, whereas some of the more mature markets have already seen this transformation take place. 
• New-age solutions such as predictive threat intelligence are just gaining traction in India, whereas these solutions are more established in the US and European markets. In the Middle East, the landscape is largely partner-driven, which acts as a barrier for Indian startups to generate leads and establish a strong client base in the region. 

Venkat Vallabhaneni, Managing Partner at Inflexor Ventures emphasises that large enterprises still prefer products which have been validated in the mature markets, resulting in a lot of Indian startups to lose out to large brand names. 

Further, these countries provide a conducive environment for innovation in cybersecurity solutions. This has also forced several of the Indian origin startups to relocate to the Western countries for access to larger markets, he added.

However, India has its share of advantages too, as highlighted by Ashok Kumar Damani, Director, Artha India Ventures. The fact that three of the top 20 global IT firms are of Indian origin, the sizeable internet user base, rise of ecommerce and finally, the significant growth in the IT sector and recruitment, clearly establishes India as a talent hub.

"If we combine these aspects in a mix, it creates a perfect recipe to establish India as a global cybersecurity giant. This in-turn has put the cybersecurity segment in the forefront of the investor circle," added Ashok.

Unleashing the cybersecurity opportunity: 3 ways investors can help

• Invest with a long term view: A product company needs longer gestation and more patient capital. In the case of cybersecurity, the product needs to deal with real time threats and availability of talent is also a challenge. 

“Cybersecurity companies have to spend a lot on building both product and talent, hence investors need to invest with a long term view and help the company evolve naturally. Unlike consumer internet companies, cybersecurity companies take longer to start monetising, hence we need more patient capital,” said Unicorn India’s Anil.

• Working together as an ecosystem: Since India is turning out to be a large market for cybersecurity products and services, this will give growth and opportunities for cybersecurity startups to build products for India to be used by the Government, Corporations and Consumers. 

“Thus, both the government and the investor ecosystem should encourage the growth of cybersecurity Startups in India. With continuous investment, mentorship and support, the governance and operations of these startups are already getting better,” said Z3 Partner’s Gautam.

• Identify companies with clear product differentiation: Most of the cybersecurity companies are startups and require significant amounts of capital for product development and marketing the product in competition with the established products from the developed markets. 

“ Investors need to provide the sector with access to more capital and large enterprise customers, and also need to identify and support companies that have strong product profiles, R&D teams, and unique product differentiations,” says Inflexor Ventures’ Venkat.

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Road Ahead in 2021

The Indian cybersecurity services industry is estimated to grow at a CAGR of 20-22 percent from FY2017 to FY2025. Moreover, the wide implementation of solutions such as Artificial Intelligence (AI), Machine Learning (ML) and Deep Tech among others, is a clear indication of the growth in this sector, says Ashok Kumar Damani, Director, Artha India Ventures.

With remote working being the new norm, investors expect more enterprises will be on the lookout for high quality cybersecurity products that can be deployed quickly and are available at economical rates. The focus is expected to shift to more innovative security applications going forward. 

Areas like cloud security, data security, endpoint monitoring, remote access and home security of employees, risk and compliance, employee visibility/monitoring solutions, anti-phishing, anti-fraud, data security, etc. will be under focus.

The pandemic has given a boost to the cybersecurity sector and helped the companies in this sector accelerate their growth. Many Indian cybersecurity ventures have witnessed a significant uptick in inbound inquiries and signing up new customers post COVID-19. Considering this rise in demand and the resulting traction, investors expect this sector to get a lot of attention this year. 

Further, Sunitha Ramaswamy, President-EarlyStage, LetsVenture emphasises that the digital push by the government is changing the way businesses are run in the country, and with growing cyberattack threats, more businesses are emphasizing proper cybersecurity protection. Hence as enterprises understand the magnitude of the problem with growing cyber attacks on businesses, there is equal emphasis on cybersecurity protection and the necessary budget for the same.

“The market opportunity is bigger than before now, hence we are looking forward to working with startups who are providing cybersecurity solutions across the board in the near future,” concludes Sunitha.