PE-VC investments in cybersecurity firms plunged to 6-year low in 2020

The country went on a nationwide lockdown last year and many companies shifted to work-from-home practices. But this scenario made it easier for cyber criminals to attack networks with targeted malware and resulted in an increase in cyber-attacks across India, forcing organisations to strengthen their security frameworks.

However, contrary to expectations, private equity and venture capital investments in cybersecurity companies last year in India were the lowest in the last six years. As per data from Venture Intelligence, a firm that tracks private companies’ investments, financials, and valuations, PE-VC investments in the segment in India was only $14 million in 2020. While seven companies were funded last year as against six in 2019, the funding amount fell nearly 92 per cent from 2019’s figures.

Change in strategy

Venkat Vallabhaneni, Managing Partner, Inflexor Ventures, said that with looming uncertainties on the economic scenario and austerity measures being put in place across organisations, investors were more focussed on companies having the ability to breakeven and not requiring significant growth capital.

“I guess Covid put some of the transactions in a holding pattern. Covid also forced all start-ups to look at their capital needs and cut out wasteful expenses, quite a few companies who were burning cash have become operationally profitable, choosing to defer fund-raising to better times,” said Pankit Desai, co-founder and CEO, Sequretek, a cybersecurity firm.

In contrast to the Indian scenario, however, the global cybersecurity sector retained investor interest last year. According to data from Crunchbase, as of December 22, 2020, the segment received more than $8.1 billion globally, as against $7.4 billion in 2019, and nearly $6.3 billion in the US in 2020 vis-a-vis $4.7 billion in 2019.

“We think the maturity in the cybersecurity space in India – both in terms of companies offering cybersecurity products and enterprises consuming these products – is still catching up compared to countries like US/West. At the time of procurement, many Indian enterprises still prefer products that have been validated in mature markets. Consequently, the opportunities for Indian product vendors are limited and many Indian products lose out to larger brand names,” Vallabhaneni said, adding, “Although this has improved significantly in the last few years, there is still a long way to go.”

Focus on security

Bhaskar Majumdar, Managing Partner, Unicorn India Ventures, said that the government’s increasing focus on security, privacy, and data sharing will help in the growth of cybersecurity start-ups in the mid to long term.

As per the recent Data Security Council of India (DSCI) report on the cybersecurity product landscape in the country, while banking, financial services and insurance (BFSI) and information technology (IT) are the dominant sectors in terms of revenue contribution to this space, the healthcare, e-commerce and manufacturing segments are also growing at a robust pace. Experts said the focus will shift towards innovative applications in data security, remote access, among others, going forward.

“The consensus view amongst the analysts and influencers is that the changes we have witnessed over the past few months are acquiring some form of permanence. It means that the accelerated digital transformation will continue to be a significant part of our lives going forward, and with that, the rising cybersecurity threats,” Sequretek’s Desai said, adding, “As a society, we will need to step up our game and respond with a heightened sense of urgency and awareness to reduce the potential cyber risks and enjoy the benefits that such transformations can provide.”