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Source: IBEF

“Software as a service (SaaS) businesses in India are projected to achieve revenue of US$ 18-20 billion and capture 7-9% of the global SaaS market by 2022, as they invest in technology to drive the next growth phase, with heavy COVID-19 tailwinds driving collaboration and efficiency platforms and remote working shifting companies to digital channels.

According to a new report by Bain & Co, SaaS companies such as Zoho, Freshworks, Druva, and Icertis have already pushed through the US$ 100 million annual recurring revenue (ARR) mark, with a strong pipeline of companies well-placed to suit over the next 12 to 18 months.

The study defines SaaS startups as those founded domestically by Indian founders (or founders of Indian origin) serving domestic and global customers with most of their workforce in India.

In a recent interview, Zoho founder Mr. Sridhar Vembu stated that the company aims to hit the one million client mark and further expand its Indian market.

The Bain report said the founders of the first generation, including Zoho’s Mr. Vembu and Freshwork’s Mr. Girish Mathrubootham, played a crucial role in this transformation as they actively engaged in developing a group of budding entrepreneurs, leading to the growth of many new projects and the creation of huge jobs.

Mr. Aditya Shukla, partner, Bain & Company and co-author of the report said, “Indian SaaS companies have stronger competitive advantage over their global peers – they have access to a large pool of qualified talent like 100K+ SaaS developers, substantially lower staff costs (75-85%) compared to developed countries for equivalent sales and production talent, and flexible models such as round-the-clock service with our IT and trained service staff.”

The report also said that in the past two years, SaaS has witnessed substantial funding momentum and will continue to gain investor focus. Investments in these businesses have risen by 20%, from US$ 670 million in the first half of 2019 to US$ 830 million in the first half of 2020.

According to data from Tracxn, SaaS companies received about US$ 2.10 billion in funding between January and October 2020, compared to US$ 1.70 billion in 2019.

Postman (US$ 150 million), Freshworks (US$ 250 million), High Radius (US$ 125 million), and digital applications such as Pine Labs (US$ 85 million) and Khatabook (US$ 60 million) are the top fund-raising rounds.

Mr. Sidharth Malik, chairman, Freshworks India said, “The pandemic has changed the way corporations treat consumer involvement. This has intensified the need for resources that allow organisations to interact and support clients, regardless of where their client-facing teams are located.”

In June, with a financing of US$ 150 million, Postman entered the unicorn group, becoming the fourth Indian SaaS company after FreshWorks, Druva and Icertis to enter the unicorn club. Postman was the fastest of the four to get there, taking six years to valuate it at over US$ 1 billion.

Startups in this sector are also backed by investors such as Tiger Global and Sequoia, who have supported large unicorns such as Flipkart and Ola.

In the future, Bain expects to gain more traction from four models from Indian SaaS firms. These include SMB-focused SaaS companies such as Zoho and Freshworks, targeting global markets with horizontal offerings that are easy to use, globally competitive emerging tech companies such as Postman, domestically targeted business-to-business (B2B) tech products such as Darwinbox and MyGate, vertical-specific SaaS companies such as Locus and Innovaccer, disrupting underserved verticals such as healthcare and logistics.

The study identifies four winning skills that will be crucial for Indian SaaS firms to develop in the current world of covid-19. This include supporting remote sales, setting up an efficient business sales engine to concentrate on going upmarket and expanding at an early stage to broad global markets, establishing a good product-market match and encouraging employee success and creativity within the company as the workforce becomes more dispersed and remote in nature.

Mr. Rajeev Suri, managing partner, Orios Venture Partners said, “SaaS and cloud-based enterprises are real winners and are here to stay. What would have taken 4-5 years has now been zapped into a four-month window because of digitization.”