In a recent interaction at the Accel Cybersecurity Summit, Prayank Swaroop, Partner, Accel, shares insights into the current investment trends in the Indian market. He discusses the growth potential in India’s cybersecurity market, driven by increasing awareness and incidents. He also explores the impact of AI on the cybersecurity sector, emphasising its role in addressing the talent gap but warning of potential job shifts. Additionally, he reflects on the evolving role of VCs in adapting to new technologies and outlines Accel’s investment roadmap, focusing on deep tech and global market opportunities.
What investment trends do you see as a VC in the Indian market, and how are you capitalising on them?
At a very high level, India has consumer, enterprise SaaS, fintech, B2B, and deep tech sectors. These are the five main areas. Due to regulatory overhang, a lot of fintech activities are not happening, and while B2B is happening, it is not at the scale it was 3-4 years ago—it has slowed down a bit. We are waiting for IPOs to happen for some of the large companies.
Deep tech is advancing significantly, with investments in semiconductors, space tech, and cybersecurity. In terms of enterprise SaaS, there is a bit of a lull because many categories are over-engineered, with too many startups in that space. However, generative AI remains a hot area, with many pursuing all sorts of generative AI and SaaS companies.
There is also a growing focus on cybersecurity. In the consumer sector, large platforms like Swiggy and Flipkart are no longer the main focus. Instead, investments are shifting towards D2C brands, although platform investments have decreased or at least are not as visible. In fintech, wealth management platforms are starting to gain significant traction.
What is the size of the untapped cybersecurity market in India?
The DSCI reported that the Indian market in 2023 was $6 billion, with $2 billion in products and $3.5 billion in services, growing at 25 percent. This growth will be even faster as more awareness and hacking incidents occur. The big question is, more than 50 percent of the market is services, and Indian customers want a lot of services. However, as more incidents happen, more products will need to be used, causing the Indian product market to grow faster than the services market.
Also, many people are not using cybersecurity products because it’s an expense, and people often think they don’t need it until they get hacked. I met a couple of founders who said, “My company got hacked, now I want to find a vendor.” As the number of hacking incidents increases in India, this market will grow. A lot of incidents go unreported, so they don’t get to the government. Customers also tend to overlook it until it starts to hurt them because hackers are becoming more sophisticated, causing more economic losses. As these incidents increase, media like yourself will write about it, raising awareness. In a few years, we’ll see much bigger usage. The market might grow 20-30 percent, but I think it could be 50-60 percent year on year, making it a big industry.
How do you see the role of AI and GenAI in the development of the Indian cybersecurity area and startups?
The biggest problem in cybersecurity is the talent gap; globally, there are about five million people employed in cybersecurity, but the need is around nine to ten million. Becoming a cybersecurity engineer in India requires not just engineering skills but more specialised knowledge. We don’t have enough of those skilled professionals. AI products can be used as an assistant. For example, my output has increased because I use AI; I can now do two or three days’ work in one day. This use of AI as a co-pilot for security engineers will significantly impact the Indian ecosystem.
There might be a negative impact because AI can automate many cybersecurity tasks, reducing the number of people needed for certain jobs. This shift from services to products poses a threat to cybersecurity jobs in India, requiring people to reskill. Indian founders are building interesting AI products, though we haven’t seen as many foundational models or middleware yet. Most products are SaaS-based. I’m surprised we haven’t seen many consumer AI products in India yet, like a weight loss assistant or personal stylist. There is potential for interesting developments, but the question remains if these products are VC-fundable. SaaS companies have shown they are, but it’s tougher for consumer products.
As a VC, what challenges do you foresee in investing in the cybersecurity market in India?
For me, the biggest problem right now is the number of smart cybersecurity startups in the market. I see maybe six AI startups every day, six or seven consumer companies, and three or four fintech companies. However, I only encounter one cybersecurity startup per week. So, what are we actually looking at? That’s really the point. To be honest, it comes down to having very smart people building these startups. I would love to see more people trying to solve the big problems. We don’t see enough of those, and that’s the challenge.
Do you think the role of VCs has been evolving with the evolving technologies?
Yes, 100%. I think VCs have to keep up with the latest technologies like cybersecurity, space tech, quantum computing, or semiconductors. VCs have to learn about them. For example, one of my partners made an investment in quantum computing. For three months, he took courses and read about quantum computing until he understood it. I’ve been trying to learn cybersecurity for the last five years. VCs have to reskill themselves because innovation means new technologies, and new technologies mean it hasn’t been done before, so you have to learn. I think it’s very important for a VC to stay relevant.
What is your investment roadmap for India?
We continue to be very bullish and have been making a lot of investments. The sectors I mentioned earlier align with our current focus. Additionally, we are now considering newer sectors within deep tech, such as semiconductors, quantum computing, defence tech, and manufacturing. We believe that the next ten years in India will be centred around these areas. We don’t want to be in a situation where quantum computing advances in the West, and we lack companies from here.
This shift in focus is significant because, until recently, most investments were aimed at the Indian market. Now, we see technology from India being developed for global markets at a deep tech level. However, the challenge remains that we need more researchers to venture out and start their own startups.