Bessemer Venture Partners Bets on AI to Disrupt $264 Billion Indian IT Services Industry

Bessemer Sees $400 Billion IT Market by 2030, Says AI is Breaking the Legacy Model | AIM

The report says that traditional models are encountering challenges, creating significant opportunities for agile AI startups to succeed. A recent report by Bessemer Venture Partners (BVP) said that India's IT services sector, valued at $264 billion, is expected to grow to $400 billion by 2030. The growth is attributed to large language models (LLMs), AI, automation, and data-driven workflows. The conventional model, which relies heavily on personnel and processes, as well as the global "follow-the-sun" approach and cost advantages, is now facing challenges. "This is a very peculiar India-specific phenomenon, a dominant position in IT services. A lot of the founders we meet have the front-end capabilities that you see in the West, but they also know what it takes to work with a product engineering team back home," said Nithin Kaimal, partner and chief operating officer at BVP India, told Mint News. However, this presents a significant opportunity. Established companies must "upgrade or lose," creating space for agile AI-focused startups to capture portions of the value chain. Legacy companies rely on the time-and-materials (T&M) model, where revenue is tied to billable hours. This is misaligned with the AI era, which aims to reduce work hours. Many have large entry-level teams and show little productivity growth, with one firm's headcount doubling but revenue per employee unchanged. According to Mint News, BVP is also focusing on pre-seed, seed, and early-stage investments in AI companies seeking to transform India's $283 billion information technology services industry, a senior executive at the global investment firm said. Bessemer reviews 20-30 companies in the AI for the IT services sector weekly. The firm is willing to invest between $3 million and $6 million, as Kaimal mentioned. For later funding rounds, the investment fund is prepared to contribute up to $15 million, thanks to its access to Bessemer's extensive global capital resources. "About 95% of our conversations are with early-stage founders, but that's because these are very early days of the disruption of the market," Kaimal added. The investment fund is prepared to invest up to $15 million, or more, in future rounds, thanks to its access to Bessemer's global capital resources as well. "This is enough for them to get things off the ground and get their first set of clients. If they're scaling well and are successful, we have no problem writing another cheque," he added, as per Mint News.

Bessemer Venture Partners bets on AI to challenge $264 billion Indian IT services space

Nithin Kaimal, partner and chief operating officer, BVP, said the fund will focus on seed-to-early-stage AI-first companies led by founders with deep domain expertise. "The AI-enabled services and software sector is unique and nascent. We can enter the space starting from pre-product, pre-revenue companies up to seed or series A.". Bessemer Venture Partners (BVP) is betting on artificial intelligence (AI) to rattle India's vast $264-billion IT services industry, long the bastion of billable hours. The early-stage venture capital fund plans to ramp up investments in AI-first startups over the next few quarters. Nithin Kaimal, partner and chief operating officer, BVP, said the fund will focus on seed-to-early-stage AI-first companies led by founders with deep domain expertise. "The AI-enabled services and software sector is unique and nascent. We can enter the space starting from pre-product, pre-revenue companies up to seed or series A.". According to the fund's AI services roadmap, the industry's revenues and margins have remained stable despite initial fears of disruption, creating a window for startups to capitalise on the constraints faced by established players. Earlier this month, life sciences firm Graph AI, which raised $3 million in a seed round led by BVP, was among the fund's first bets in this thesis. Kaimal said the fund also invested in healthtech company Teleradiology Solutions and SaaS startup ShopDeck. "Beyond that, there are at least five or six teams we are talking to, to close a deal. We are spending a lot of time and planning to deploy more money in this over the next few quarters," he said. Cracks in the old model BVP sees an opening for AI-native startups in IT, as adoption of the technology in the industry is still limited. In a report released on Tuesday, the fund stated that 70% of IT revenues comes from time and material contracts, a model that rewards billing hours instead of driving client efficiency or outcomes, which is directly at odds with AI adoption. Then there's the IT workforce pyramid, which is heavily weighted towards junior staff (60% of headcount), and noted that incumbent R&D spending is minimal, often under 1.5% of revenue, compared to over 20% for leading product companies. These issues, the fund argued, create an opening for AI-first solutions to scale. Kaimal explained the three pockets of AI-enabled startups the fund finds opportunity in: * Software: AI-driven platforms that fully automate repeatable workflows, like agents in call centres or those used for data processing. * AI-enabled services: These are startups that apply AI to complex processes but maintain a human-in-the-loop (HITL) model for oversight and decision-making. * Technology services for AI: This is a relatively new category focussed on enabling AI adoption itself. These include services like training for large language models (LLMs). The report states that the best companies in this space will demonstrate rapid deployment, achieving value for enterprise clients in less than one quarter. It projects that India's IT services industry will exceed $400 billion by 2030 as AI reshapes technology sourcing and delivery.