Indian SaaS start-ups, ‘darling’ sector for investors

TE Raja Simhan Chennai | Updated on September 20, 2021

Freshworks likely to to list on Nasdaq on September 22

Freshworks will become the first Indian Software as a Service (SaaS) company to go public – it is expected to list on Nasdaq on September 22. It became a Unicorn in 2018, and was last valued at $3.5 billion.

Its listing could just be the start and many other Indian SaaS Unicorns could follow suit. Indian SaaS start-ups have seen a tremendous transformation over the years, and are now a ‘darling’ industry for investors.

Indian SaaS start-ups have raised $4.3 billion (across 282 deals) in funding since the beginning of 2020, and nine out of the 10 SaaS unicorns were created since 2018, according to data released by Venture Intelligence. “The sector is a phenomenon this year. No other sector has seen such a transformation and growth in the last two years,” said its CEO Arun Natarajan.

India could be on the cusp of unlocking a $1-trillion opportunity for SaaS companies, creating nearly half-a-million new jobs in the process over the next nine years, according to the ‘Shaping India’s SaaS Landscape’ report, released in July by SaaSBOOMi, Asia’s largest community of SaaS founders and product builders. It conducted the research in association with knowledge partner McKinsey & Company and supporting partner NASSCOM.


Agreeing with Natarajan, Aditya Shukla, Partner with Bain & Company, a global consultancy firm, said the Indian SaaS landscape has witnessed transformational growth over the last few years. Indian SaaS companies have evolved from a few upstarts such as Zoho and Freshworks (both Chennai/US-based) in the 2010s, to a multi-billion-dollar industry today.

This has been enabled by the distinct competitive advantages that Indian SaaS companies possess over their global peers – low-cost structure and frugal mindset, depth and abundance of engineering talent, effective customer service, and growing salience of products from Indian founders further accentuated by a level-playing field.

Value creation

The value creation from SaaS in general and Indian SaaS companies in particular is immense. Exit momentum has improved over the last three years (100 per cent growth in number of exits) across secondary transactions and M&A, with IPOs also opening up a new exit path. Indian SaaS companies are generating value, in line with global SaaS peers, with a comparable annual recurring revenue (ARR) to funding ratio.

According to a recent benchmarking analysis by Bain & Company, select leading Indian SaaS companies such as Freshworks, Browserstack, Gupshup, HighRadius, Chargebee and Innovaccer, are even outperforming their US peers in terms of capital efficiency. This makes it attractive for PE/VCs at large, and explains why Indian SaaS firms have attracted a diverse group of investors, he said.

The increased investor interest is supported by rise in Indian SaaS revenue maturity, with 6-8 companies now having reached $100 million-plus ARR. In addition, there are 10-12 in the $50-100 million ARR band, and another 15-20 in the $20-50 million ARR band. Each of these has a very real possibility of taking the IPO route in the next few years, he said.

‘Revenues are predictable’

“SaaS revenues are predictable, particularly the success of Zoho and Freshworks have shown them to be extremely capital efficient and can scale globally,” said Mahesh Ramachandran, General Partner, Pontaq Venture Capital Fund.


Published on September 20, 2021

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