Massive growth projected for Indian SaaS industry globally

Indian SaaS companies are projected to double their global market share by 8% – 9% and reach a compounded annual growth rate (CAGR) of about 30% by 2025.

In the past decade SaaS has revolutionized the software industry and the numerous businesses it supports. With rapid digitization and cloud computing there has been a paradigm shift and SaaS has surfaced as the preferred software delivery model. SaaS’s subscription based and on-demand business model opens the door for start-ups and enhances the prospect for wealth creation especially in a growing market like India. 

According to Noshir Kaka, Senior Partner at McKinsey & Company, “This (SaaS) is one of the biggest opportunities in front of India in the next decade. What the tech services industry has done for the country in terms of jobs, exports, value creation and entrepreneurship, we believe that the SaaS opportunity will actually rival that.”

India’s Distinct SaaS story

According to founding partner SaaSBOOMi & founder and CEO of Eka Software Solutions, Manav Garg, “For some context, we have about 1,000-plus SaaS companies in India today. We have more than 15 unicorns as of now, and new ones are cropping up every single month. In total, all those SaaS companies are bringing in about $2.6 billion in revenue today, a figure that is expected to grow to about $50 billion to $70 billion by 2030. You’re looking at 25X growth in the next nine to ten years.”

India’s Unique Structural Position & Huge Talent Pool

India is positioned for exponential growth in SaaS area due to its unique place in the global market scene where the complete preliminary go-to-market can happen locally within India. Moreover, apart from the SaaS hubs in Chennai and Bangalore India’s enormous SaaS talent pool ensures that software experts and engineers from smaller cities are capable of creating SaaS enabled software systems. Additionally, India is equipped with the second largest developers pool (3 Million) for devising infrastructure tool, which embodies approximately 40% of the total SaaS market. Since SaaS is a secular and democratic trend it can be used in myriad organization like in horizontal market organizations (Finance, Sales and HR) and even transition to vertical markets organizations (Healthcare). With its huge knowledge and experience in global IT industry, including vertical and domain proficiency India’s SaaS future looks robust.

Talking about the significance of B2B domain capability in India and its role in driving Indian SaaS growth as well as the structural advantage has over other countries, Sid Tandon, (partner in McKinsey’s Silicon Valley office) elaborates that “…the level of understanding that exists in the Indian services industry about enterprises’ individual processes and workflows is just phenomenal, and I think that is a huge advantage. The go-to-market cost advantage is another fundamental point. After all, the biggest constraining factor for a SaaS company is how rapidly you can drive growth, and a lot of that essentially gets down to how many resources, in terms of dollars and people, you need to deploy to drive growth. We are seeing enterprise models where 70 to 80 percent of the sales and marketing workforce is working out of India. Given the broader availability of talent and lower acquisition cost for that talent compared to the North American market, you can drive a lot higher growth with the same investment, which is all that counts in SaaS in terms of value creation at this stage…”

Greater investor interest

The panorama of Indian SaaS industry has witnessed exponential growth over the last couple of years. This upward trend looks promising with amplified investor attention and increasing scalability of businesses. By 2021, over 35 SaaS Indian organization accumulated a revenue $20Millon over and above their ARR. This accounted for a 7-fold increase in their revenue in just 5 years. Giving credence to the SaaS growth prediction is the fact that with more than 8 SaaS companies reached the $100 M mark in their ARR as compared to only about 2 companies in the past 5 years. Investment in SaaS has reached a whooping $4.5 billion mark in 2021 – this is an increment of 170% in comparison to 2020. SaaS accounts for 8% of the entire venture capital deals and private equity deals accomplished in India.

Significant Value Creators

Four significant value creators, induce the Indian SaaS revolution namely, formation of talent pools, greater capital efficiency, rise in exits and cascading ramification.

Formation of Talent Pools – Indian SaaS businesses are involved in creating SaaS empowered work force and employs more than 60,000 individuals with SaaS and aligned skills.

Greater Capital Efficiency – The SaaS companies in India have an enviable funding to ARR ratio, with a few even outpacing International competitors including USA.

Cascading ramification – Over 250 fresh SaaS Indian companies have been instituted by ex-SaaS Indian firms who leverage on their experience and pass it on to over 5000 individuals they employ.

Partner & leader in Bain & Company’s Global Vector Solutions Group, Arpan Sheth notes  “While the overall growth in funding has been driven by an increase in deal volume across stages, there has been notable growth in the volume of deals larger than $50 million, as investors give a clear vote of confidence in the potential of Indian SaaS companies to achieve substantial future growth,”

Major segments for SaaS Funding

SaaS funding in India is diversified among 3 major segments with horizontal business software factoring for over 50% of the overall SaaS investment. Horizontal business software has witnessed exponential growth by grabbing bigger size of deals. Horizontal infrastructure software and vertical business software constitute the other 50%, with vertical business software exhibiting 100% growth success in terms of quality of deals. Both mature and old SaaS firms in the horizontal business software sub segment has seen success in of events tech, human resource tech,entreprise collaboration and conversational AI. The horizontal infrastructure software growth trend in SaaS firm is for DevOps, cyber security, data management, Dev tools and observability. Healthcare tech, e-commerce enablement, edtech and logistics tech in vertical business software sub-segment of Indian SaaS firms has achieved exponential growth rate.

Diverse investor base

Increasingly disparate investor base has been stimulated mainly by the persistent growth in SaaS capital in India. This diversity is evident both in the category of investors as well as the stage at which they invest. Sovereign wealth funds and corporate venture capitals are some examples of new category of investors. Later stage investors are breaking traditions and investing funds in early stages, while conventional investors are making path-breaking investments.

With the SaaS Indian scene becoming more seasoned and mature, investors are moving beyond their traditional roles of being capital providers. Investors are becoming increasingly involved in different aspects of the firms like recruitment, operations, product evolutions and more.

Empowered by top-notch founders and robust backing from investors backing the projected SaaS revenue for 2025 is $30 billion, which comprises of approximately 9% of the international SaaS market.

Winning characteristics in SaaS firms

Indian SaaS landscape has shown significant growth with SaaS firms demonstrating winning traits like – the right approach in building a product that fits the market demand, supporting it with actionable GMT, pricing competitively and focusing on customer satisfaction; enabling a culture of innovation and teamwork; being a visionary to understand the market needs and demands and future of the product or service and openness for adopting relevant strategies.

Some of the other elements for a SaaS India success story are the focus on certain vital business areas like – Packaging and pricing across the different of customer sections while keeping a driving profit; Establishing efficient sales channels across various customers segments and geographies; Scaling profit and growth through continual adjacency expansion by constantly exploring new areas of business.

A collective endeavour of all stakeholders

India’s SaaS ecosystem is flourishing with global and domestic investors, SaaS enablers, incubators and accelerators like Upekkha, Tlabs, 500 Startups and many more. Some of the top SaaS enabled companies in India like IBSFintech, Keka and High Radius have displayed winning traits through their evolution. From focusing on creating a strong product line, to researching the geography and market for the right customer and product fit before indulging in expansion, to factoring in price meter for more competitive pricing while driving profit. Involving channel partners to drive sales and execution in specific geographies is also a key element for success.

The future of Indian SaaS in the global scenario is bright but requires certain ingenuities from various stakeholders to further the robust growth. Facilitating a system of governance minus the restrictive regulations and encouraging incubation and training of talents is imperative. Founders take up the role of enablers by sharing experience and information as well as aiding in networking. Investors are required to be more involved in mentorship, product development, strategy formulation, sales and networking apart from funding. Corporates can fuel the SaaS engine in India by assisting in funding, training as well as mentoring.  Universities too have a significant role to play in developing and training the SaaS talent pool by incorporating relevant vocational training programs. The demand and supply gap in SaaS organizations can be mitigated by investing time and money to enhance the talent and evolving work places to provide an atmosphere of learning through apprentice or internship opportunities. Seasoned SaaS personnel also require training from time to time to upgrade their skill according to the changing market needs. Therefore collective yet targeted intervention from various stakeholders, especially the Universities, corporates and Government can guarantee Indian SaaS a formidable place in the global map. With digitization seeping into all aspects of life SaaS industry in India are amplifying their efficiency and responding to the increasing demand in the global market. Keeping the pandemic in perspective it is crucial to drive investment in SaaS to bolster Indian start-ups, IT sectors, creating revenue and employment. Providing financial inducements to Indian SaaS unicorns will facilitate further growth. Manav Garg reiterates, “ We are expecting Indian SaaS to grow to about seven percent of the global market.”

Minakhee Mishra

An e- commerce website that developed from an online publication.Buzzingtales features print on demand products with original artworks and designs by Minakhee. The platform still features posts on food, fashion, promotion/events food, restaurants, book reviews, entertainment, health parenting, travel, well-being and myriad issues of life and living.

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