Desi unicorns are on a mission to reshape the SaaS space

Even as India eagerly awaits the subsequent mega IPO in the country’s burgeoning software as a service (SaaS) sector, founders and investors keeping a close eye on the industry say, ‘don’t forget about acquihires and mid-size acquisitions,’ which could become commonplace by 2022.

According to Sanjay Nath, co-founder and managing partner at Blume Ventures, this consolidation could be led by the ten-odd Indian SaaS unicorns, who recognize the importance of bringing in quality talent and intellectual property while paying a fair value for it.

If this occurs, it will mark a significant departure from the past, when global companies and tech behemoths primarily led acquisitions in the SaaS space. For example, Microsoft and US-based 6sense acquired and Slintel, respectively, in 2021.

However, acquisitions will not be the only thing these SaaS unicorns and other successes will drive.

“SaaS unicorns, amongst the universal set, have become role models for others to start up. We can expect and look for ex-employees of such unicorns, who have scaled business units and seen the lifecycle from scale-up to exits, to start up and look for funding similarly,”

Sanjay Nath, co-founder and managing partner at Blume Ventures

In September, Girish Mathrubootham, co-founder and CEO of Freshworks, the first Indian SaaS company to go public on the Nasdaq, entirely agrees, stating that the pipeline of companies expected to cross the $100 million annual recurring revenue (ARR) mark is healthy.

“If we take a two-year horizon, you will see the next set of SaaS companies going public. The best way to measure this is to measure how many companies have crossed $100 million, $50 million, $10 million, and $5 million in ARR mark. Only four (Indian SaaS) companies had more than $100 million ARR just a few years ago,”

Girish Mathrubootham, co-founder and CEO of Freshworks

According to Bain & Company’s ‘Indian SaaS Report 2021,’ investments in the sector will reach $4.5 billion in 2021, a 170 percent increase over the previous year. This expansion was primarily driven by the rise in transactions valued at more than $50 million.

Mathrubootham agrees that SaaS company valuations are out of control. At the same time, Nath says that in Series B and C funding rounds, the revenue numbers of firms are not aligning with desired valuation bands, creating a potential risk of overpricing that can harm founders and investors.

Furthermore, if India keeps up with new and emerging trends in the sector globally, it will need to develop a strong pool of SaaS talent. Vertical SaaS, robotics-as-a-service, and SaaS for domestic Indian businesses are the key growth areas for the next few years.

“Verticalisation wasn’t an interesting concept a few years ago because laggard industries didn’t have budgets to buy software, but today, the market is becoming a lot more specific.”

Shruti Ghatge, co-founder and CEO of Zomentum

She says that India is well-positioned to capitalize on this opportunity because customizing solutions for customers by building many integrations is a labor-intensive process.

“A US company, for instance, can’t keep investing so much in resources to keep building integrations, and as a result, I see India SaaS at the cusp of this massive change,”

Shruti Ghatge, co-founder and CEO of Zomentum
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