Ease of Doing Business for MSMEs: Indian SaaS entities are increasingly tapping into new segments including small and medium enterprise (SME) and under-penetrated verticals that have been witnessing growth in software adoption with increasing digital penetration and shift from manual processes.
The current yield of Indian SaaS startups has the promise to take on their global counterparts directly.
Ease of Doing Business for MSMEs: While there is a wide appreciation of Indian software-as-a-service (SaaS) startups such as Zoho, Freshworks, Druva, Capillary, InMobi, and more globally, but the country can have as many as three SaaS businesses with more than $1 billion in revenues in the coming years. “We talk about the number of companies having greater than $100 million annual recurring revenue (ARR) being 4-5, but my sense would be that within a few years we would have two or three that are over $1 billion in revenues,” Arpan Sheth, Senior Partner, Bain & Company told Financial Express Online. Sheth leads the firm’s Asia-Pacific technology, vector, and advanced analytics practices along with its private equity and alternative investor practices in India.
Indian SaaS entities are increasingly tapping into new segments including small and medium enterprise (SME) and under-penetrated verticals that have been witnessing growth in software adoption with increasing digital penetration and shift from manual processes, according to a report by Bain & Company titled India SaaS Report 2020 released on Tuesday. Zoho, Kissflow, and Freshworks are among SaaS businesses focusing on SMEs. While Zoho has around 4 lakh customers in around 180 countries, Freshworks serves around 2 lakh customers in around 150 countries, the report noted.
“SMB-focused SaaS companies are flourishing given the vast and growing SMB market opportunity. SMBs accounted for 40 per cent of global software spend in 2016, and that was up 10 percentage points to 50 per cent in 2019. Indian-heritage SaaS companies like Freshworks, Zoho, Kissflow, and Chargebee have built a strong SMB customer base across a number of countries by tapping into this opportunity,” Prabhav Kashyap, Associate Partner, Bain & Company told Financial Express Online in an email response. Kashyap is a leader in the company’s private equity practice.
The Indian heritage SaaS companies are set to reach $18 billion to $20 billion in revenue and acquire 7-9 per cent of the global SaaS market by 2022 from 3-4 per cent in 2019, the report claimed. Moreover, despite Covid, SaaS has been a significant area of investment for investors that have bet more during the pandemic. From 15 per cent of the VC and growth equity investments in the first half of 2019, the share rose to 20 per cent in the first half of 2020. Also, the number of SaaS startups – 4k-5k founded five years back — has nearly doubled to 7k-8k now.
However, the domestic SaaS market has traditionally been challenging to monetize because of lower awareness and higher price sensitivity compared to global markets. Despite that “Indian SaaS companies are trying to scale through specific initiatives like investments in market creation via freemium offerings, innovative monetization models and clear articulation of benefits to the customer with a tangible return on investment metrics,” Lalit Reddy, Partner, Bain & Company and its leader in private equity and digital delivery practices told Financial Express Online.