Is the Indian SaaS Story Overhyped? – Entrepreneur

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By S Shanthi
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As the world went remote during the pandemic, many companies, from small and medium enterprises to large companies, adopted software-as-a-service (SaaS) with open arms. Or, rather they were forced to embrace it. This has made SaaS more promising than ever before and India’s SaaS community is today getting global recognition.
According to a report by SaaSBOOMi and McKinsey, India’s SaaS industry is projected to generate revenue of $50-70 billion and win 4-6 per cent of the global SaaS market by 2030, creating as much as $1 trillion in value.
However, we at Entrepreneur India, observed that the number of SaaS soonicorns, as mentioned in the list prepared by PGA Labs, the market intelligence business unit of Praxis Global Alliance, is not significant. Out of the 36 soonicorns in the list, that is startups valued above $200 million and have the potential to be unicorns in the next 12-18 months, including Dunzo, Capital Float, Classplus, only one startup, that is GreyOrange, is from the SaaS segment. The highest is from the fintech sector, followed by logistics and edtech.
We thus spoke to some startup experts to get a clear picture of where the sector stands and its future.
SaaS Soonicorns And Unicorns
Experts watching the SaaS space opine that after Freshworks recent listing, global perception towards Indian SaaS companies has changed. Last month, Freshworks became the first Indian software maker to list on Nasdaq. “SaaS companies in India are gaining acceptance and attention from investors. Initially, investors were slow due to the nature of revenue which is a money sucker but as the customer base grew with a lower drop, the revenue started to look good. Things have changed a lot after Postman and Freshworks. Indian SaaS companies are now seriously looked at as potential unicorns,” said Anil Joshi, managing partner, Unicorn India Ventures.
The SaaS ecosystem is relatively nascent in India and is led by players such as Freshworks, Capillary, Eka, etc., said Anurag Ramdasan, partner, 3one4 Capital. “While there are double-digit unicorns in Indian SaaS today, it’s still a very early ecosystem and we are seeing a lot of innovative SaaS in the seed to series A stage in India,” he said.
According to Vinayak Shrivastav, Co-founder and CEO, Toch.ai, the Saas market in India does not have a larger traction rate when compared to the global market. Globally there is a bigger audience and acceptance rate. “Due to this reason, India has a lower number of soonicorns in comparison to global markets. This change can only happen when the adoption of Saas technology across industries is unanimous for Indian Saas products as there is still no first-hand approach for Indian business as the market is completely driven by foreign companies. It is a matter of time, things are picking up in India and the adoption rates are on the rise,” said Shrivastav.
Many companies that have become soonicorns and unicorns have great consumer stories and investors today look at India as a huge consumer story. “In some of these cases what we are doing is Indianizing ideas that worked successfully in the West or the East. SaaS businesses work differently. While there can be international comparisons, but the product has its own journey. In my experience, one big challenge India’s SaaS companies face is poor pricing from Indian clients. Many investors prefer seeing a global clientele and higher margins before they make an investment and that takes time to build,” said Ankur Mittal, co-founder, Inflection Point Ventures,
2021 is being called a landmark year for SaaS. “We have seen companies like Mindtickle, Chargebee, Zenoti, Whatfix and others cross significant milestones this year, and there is every reason to believe that this is only accelerating. We are also seeing increased investor interest, both in early and late, from global VCs in Indian SaaS, which only further helps the cause of Indian SaaS start-ups,” said Arpit Maheshwari, principal, Stellaris Venture Partners.
“Many Indian SaaS companies are building quality products that can compete and succeed in the international markets and consequent funding will follow but just in terms of numbers, probably it will be relatively less when compared to the strong consumer story,” Mittal added.
The Pandemic Impact
COVID-19 has been a significant tailwind for Indian SaaS companies for many reasons. “One, digital adoption has been accelerated across businesses globally, leading to a deeper market to target. Two, buyers are increasingly more willing to buy software remotely, and for larger contract sizes. This leads to increased capital efficiency for companies with inside sales-driven GTM motions,” said Stellaris Venture Partners’ Maheshwari.
The pandemic, experts believe, has made the pace of adoption faster. “Certainly Pandemic made adoption easier. Most businesses grew because of their ability to adapt SaaS offerings which enabled enterprises in offering their products and services to the end consumer,” added Unicorn India Ventures’ Joshi.
During this pandemic in India in 2021, 3 SaaS companies have attained unicorn status. In August this year, MindTickle became the third Indian SaaS startup to become a unicorn in 2021, after Chargebee and BrowserStack. “This in my view is just the beginning of a new era of SaaS startups. In the next few years, India will be suitably positioned to lead the global SaaS ecosystem, with a lot more Unicorns and Soonicorns in the space,” said Inflection Point Ventures’ Mittal.
Near Future
After Freshworks listing, Indian SaaS companies are valued more globally because of the lower cost they offer as compared to developed nations and because of the tech boom in India. “However, I see a challenge in retaining Indian SaaS companies as India headquartered and they may migrate to the US for better acceptance and investment opportunities. Overall it will be still a win-win situation for Indian SaaS companies, good times ahead,” said Unicorn India Ventures’ Joshi.
Most Indian SaaS companies are headquartered outside India and a bulk of them are in the US followed by China and UK, “But, SaaS in India is coming up the curve due to the acceleration in digital consumption caused by the crisis. There is a greater headroom for growth in the domestic market and we will soon have a lot of soonicorns from this sector,” said Madhur Singhal, managing partner and CEO, Praxis Global Alliance, a global management consulting firm.
“As the B2B startup ecosystem has evolved in India, a large chunk of PE/VC investments has gone to SaaS startups and we are extremely optimistic about the success of SaaS businesses. The deal flow in SaaS will stay robust which is a testament to investors’ faith in the Indian technology ecosystem,” he added.
Overall, experts expect many additions to the unicorn and soonicorn list in the next 2-3 years. “We believe SaaS is very bullish in India and across the world. Everything that is on excel will soon become software-based and each one of these has great value that they are creating in terms of productivity, collaboration, efficiency, and scalability. Soon we will see many more IPOs on Nasdaq,” Anshul Sushil, co-founder and CEO, Wizikey, a martech company.
Stellaris Venture Partners’ Maheshwari shares with us a few key trends that will continue to act as tailwinds for Indian SaaS companies. These include, among others, the emergence of AI-first SaaS that experts believe will be the next big wave of SaaS applications, growth of developer-focused SaaS from India as India becomes one of the largest consumers of this category of software, Data-as-a-Service as systems of record get saturated and enterprises look for systems of intelligence/prediction and finally global “bottom of the pyramid” SaaS from India targeting micro-entrepreneurs or gig workers.
“SaaS companies today are seeing a lot of valuation premium. It will be exciting to see founders scale their companies and grow into these valuations in the next few years. From an IPO standpoint, things are still early in terms of SaaS listing in India however the regulators have been doing a lot of work in making it easier and we continue to remain excited,” said 3one4 Capital’s Ramdasan.
Overall, Freshworks’ IPO has given the necessary push to India’s SaaS ecosystem. There is today a higher level of confidence that Indian SaaS companies can build world-class products, compete and win business from anywhere in the world.
Former Senior Assistant Editor
Shanthi specializes in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. 
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