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SaaS (software-as-a-service) startups have attracted more investor interest in the ongoing market downturn. Venture capital firms like Prosus Ventures (formerly Naspers) and Antler India have spoken about their increased focus on SaaS companies this year. Experts feel that SaaS companies’ low cash-burn and strong business fundamentals are the major drivers of this trend.
“Whenever there is pressure on liquidity you will see more migration towards businesses that can sustain themselves with low diffusion of cash. Therefore, SaaS businesses have become more attractive,” Manu Rikhye, Partner at Merak Ventures, told BusinessLine. According to Amit Nawka, Partner, Deals & Startups Leader, PwC India, the revenue multiple for SaaS is always higher than any other sector gets because these companies turn profitable faster and are not cash-burn businesses.
“Overall SaaS industry is looking much healthier in the current market scenario. While consumer businesses have seen their valuations slashed by 50 per cent, SaaS companies are at a comparatively better place and have not seen steep valuation cuts,” said Ajay Jain, Co-Founder & Managing Partner of Silverneedle Ventures said,
He added that SaaS companies are also built on stronger fundamentals and have predictable revenues making them attractive to investors. Along with this near-term trend of funding crunch, Rikhye noted that this increased VC interest is also a function of more and more Indian SaaS businesses becoming successful and expanding globally.
According to June 2022 report by Bessemer Venture Partners, India’s SaaS market has reached a critical inflection point as venture dollars deployed in the region reached $4.8 billion in 2021. With digitization increasing year-over-year due to an increasingly hybrid world, SaaS start-ups founded in India have seen significant growth in recent years.
India’s SaaS market is the growing cohort of maturing businesses. The Bessemer Venture Partners report noted that since 2015, the number of private SaaS companies in India that have achieved the $100 million ARR milestone has increased from two in 2015 to about eight companies today, including Zoho, Icertis, Druva, and Eightfold.ai. Further, the Indian Software as a service (SaaS) market is projected to be valued at $50 billion by 2030.
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