According to a July 2020 NASSCOM report, India’s software-as-a-service (SaaS) ecosystem generated revenues of close to $3.5 billion in 2019-20, and was growing at a 30 percent rate annually, with nearly 75 percent of the revenue-share coming from global sales. India’s SaaS growth rate was also 1.5 times greater than global growth.
Today, we have six SaaS unicorns in India – Zoho, Freshworks, Postman, Druva, HighRadius, and Icertis. With more than 1,000 companies in the market, NASSCOM predicts that pure-play SaaS can collectively generate revenues of upto $15 billion by 2025.
In the first Chapter of The Executive Diaries powered by Amazon Web Services (AWS) in association with YourStory, some of the biggest names in India’s SaaS ecosystem offered key insights on India’s ISV Market – Capturing a global SaaS opportunity. The session began with a fireside chat with Shekhar Kirani Partner, Accel Partners and Shradha Sharma, Founder and CEO, YourStory. This was followed by a panel discussion co-hosted by Shradha and Puneet Chandok, President, India and South Asia, Amazon Internet Services Pvt. Ltd. The panellists were Aneesh Reddy, Co-founder & CEO, Capillary; Ankit Sobti, Founder, Postman; Baskar Subramanian, Co-founder, Amagi; Jayant Paleti, Co-founder, Darwinbox; and Milind Borate, Co-founder, Druva.
Introducing The Executive Diaries, Puneet said, “I’m glad AWS and YourStory have come together to curate this series to truly differentiate the signal from the noise around us. The session will deep-dive into some real actionable learnings both from a business and technology vantage point. It aims to help our audience identify new ideas and opportunities and have conversations around how to actually build and scale on these ideas.”
An unprecedented opportunity
India is one of the largest Independent Software Vendors (ISVs) hubs in the world and with the rapid increase in digitisation of businesses, the sector is on the precipice of tremendous growth.
Speaking about how the sector has evolved, Shekhar said, “ In 2016, we did a Google Accel SaaS report, where we predicted India would have several billion-dollar companies, and that by 2025, we would have $10 billion of revenue coming out of SaaS companies in India, and $50 billion of market cap. We could not have been more wrong. I believe that we’re going to break this $50-billion market cap very soon and $100 billion is the new prediction.”
He said that to become successful in this space, companies need to think on four axes. “The first axis is understanding what function you are targeting. Is your product being built for everybody or a specific function? The second axis is the size of the customer. Is it a prosumer, a mid-sized company, or a giant enterprise? The third one is deciding the sector or domain. Are you building for education, media, healthcare, finance, etc. Some sectors offer massive potential. Healthcare itself is 17 percent of GDP in the United States. Anything you touch, you can still build massive companies there. The fourth one to think about is the axis of building for India. In each of the nodes, you can build multi-billion dollar companies. So, it’s about identifying that market and hammering it down.”
Speaking about his investment strategy, Shekhar said, “Accel is a very early stage investor. Now we invest in seed and early stage, which means very, very young companies. When we’re investing early on, we look at the team, and if they’re passionate about the problem they are trying to solve. But in general, for me, any tech company that is disrupting any markets, where they have some insights about that market, is a perfect candidate.”
How the SaaS ecosystem is transforming
Today, we are witnessing more and more globally-focused category-creating companies to come out of India. Ankit from Postman, one of the latest entrants to India’s SaaS unicorn club, said, “When we started out about six years ago, it was very important to prove that great deep technology companies and products could be built out of India and have a global impact, given the fact that India has one of the largest developer communities in the world.”
He added that the ecosystem is now primed to only do better, and that more category-creating, globally leading will come out of India, and the Indian ecosystem.
Another significant factor that will aid this growth is the precedent set by forerunners in the sector. Aneesh said that a lot has changed since he was a first-time entrepreneur. At the time, there were no playbooks to follow. Today, there is a playbook for every region and market. “The other contributing factor is that a lot of good founders, who otherwise would have been job seekers are becoming entrepreneurs. So, I do believe that we’ll have many companies, getting to 100 million revenues out of India in the next four or five years.”
Echoing Aneesh’s statement about entrepreneurs drawing inspiration from their predecessors, Jayant said, “ I would probably be in the category of a job seeker if I had not seen so many companies get built before. People like Sridhar Vembu started a cloud company when the word SaaS was not even coined.” He also said that he was inspired by his co-panellists like Aneesh and Bhaskar who showed that you could build a great product coming out of India, which was a major source of confidence.
Build local or go global
Today, the world is a far more porous place than it was earlier. There is inherent respect for companies and products that solve real problems, regardless of place of origin.
Milind said that by default he would go with a crawl, walk, and run approach when it comes to going global. “It doesn’t mean that you have to start in India and then go global, you can actually start with your early adopter market. And that’s something that you would figure out based on what your marketing surveys are. Make sure that you solve their problem and grow from there. If you have a viral product, it may make sense to actually just go global from day one. However, for typical enterprise products, I would still say, crawl, walk and run.”
Bhaskar said that he would recommend starting with a lazy market that is ready to adopt faster. “I don’t think the cost of go-to-market (GTM) is a big challenge for most SaaS businesses. I’m sure a lot of us will have seen the cost of sales is extremely low when compared to the sort of lifetime value that you can actually get from enterprises today. I think companies should leverage that meaningfully and effectively.”
The right time to raise funds
One of the key questions SaaS founders deal with is when to raise funds or seek investments. Bhaskar said that SaaS is typically a very cost-effective business. “I don’t think you need boatloads of money to start with. I think scale is where the money is needed. If you’re able to demonstrate traction, even in a small ecosystem, I think that’s a critical first step. I would urge any entrepreneur to not make the mistakes of raising money too early. So, minimise and optimise yourself to a point where you’re able to get to production, then go back and get scale money .”
Jayant said,“I think as a segment now SaaS is extremely well understood. I think this model business value-wise, from a finance fundamentals point of view, is making sense, I think it’s a segment where there’s a lot of interest. Five years ago, when we started right, the number of funds that were investing in SaaS were limited. Now, every fund has a SaaS mandate and everybody’s looking for the right company, or idea to back.” He added that entrepreneurs should also look to benefit from the counsel of investors who had helped other SaaS players grow. “It is that accumulated institutional wisdom that you will ever hear, especially if it’s from a good fund that has probably before in the valley or any other place any number of places. That counsel helps and creates more data for you to figure out your own strategy going forward.”
Finding newer opportunities
Today, people can build a business from anywhere in the world. Companies can hire virtually, collaborate, sell, deliver, and offer support virtually. Remote engagements are now becoming the norm. “We have always had this mental block that you can’t sell digitally, and that it’s all relationship based. All that’s changed today. You don’t need a large sales organisation in markets like the US and the UK, or whichever market you’re going to, you can serve customers from India once they get used to the remote way of selling, which is again a really interesting unlock,” said Puneet.
He said that there has been a real democratisation of technology, driven by the Cloud, and anyone sitting in a Starbucks or their homes has access to as much compute and storage and analytics and any technology at the click of a button.
He added that the current environment had also created opportunities in the SME market. “Most companies in India have a mission that they want to move the country forward. But you can’t move India forward unless you’re doing something for the 75 million SMEs, that contribute to roughly a third of India’s employment and half of our exports. If they don’t digitise, it’s very difficult to imagine India moving forward from a technology perspective right.”