Shaping the SaaS landscape: a US$1 trillion opportunity for India’s startups

Shaping the SaaS landscape: a US$1 trillion opportunity for India’s startups
Manav Garg

Manav Garg, CEO & Founder, Eka Software Solutions, Founding Partner SaaSBOOMii: “India has an exciting opportunity to propel itself on to the world stage as a SaaS force to be reckoned with. While there are challenges ahead, these are not insurmountable and SaaSBoomi is of the view that there is nothing that can stop the Indian SaaS community from building on its strong foundation to make SaaS a preeminent industry in India that employs a lot of talent, contributes significantly to India’s GDP and creates unmatched global products and platforms. The findings in this report will provide Indian founders with insights that will help them engage in long-term planning and accelerate future growth.”

Sharing her thoughts on the report launch, Debjani Ghosh, President, NASSCOM, said, “The Indian SaaS ecosystem has the potential to create $1 trillion in value and nearly half a million jobs by 2030, owing to digital transformation and automation in organizations across sectors. Increasing digital transformation is accelerating SaaS adoption aiming to perform analytics & AI and data management applications. To create awareness around the potential of SaaS in India, it is imperative for the Government to collaborate with industry associations, investors, and corporates, and drive large-scale training programs by partnering with universities and institutions.”

“India is now a hotbed of innovation with nearly 1,000 SaaS companies and 10 unicorns. I couldn’t be prouder of how far this community has come on the journey to bring India’s SaaS industry to the world,” said Girish Mathrubootham, founder and CEO of Freshworks. “I’ve always believed that for those of us who have helped pave the way, we owe it to others to pay our learnings forward. When we share knowledge, experience, successes, and even failures, as we do at SaaSBOOMi, we make entrepreneurship more accessible than before.” Girish Mathrubootham, Founder & CEO, Freshworks and Founding Partner, SaaSBOOMi

The Indian SaaS (Software-as-a-Service) community is maturing and is now an industry in its own right.
SaaSBOOMi, Asia’s largest community of SaaS founders and product builders, today released a new report sketching out the contours of a $1 trillion opportunity for Indian SaaS companies over the next decade. The report `Shaping India’s SaaS Landscape’ highlights the growth potential of the segment, and what the companies need to do to capture a greater share of the global market. Independent third-party research and analysis was conducted by McKinsey & Company as Knowledge Partners.

Anchored by Manav Garg, the founder and CEO of Eka, the report has inputs from leading SaaS founders including Girish Mathrubootham of Freshworks, Ritesh Arora of BrowserStack and Krish Subramanian of Chargebee and VCs Mohit Bhatnagar of Sequoia Capital and Shekhar Kirani of Accel Partners.Inaddition,over40IndianSaaSstartupshaveprovidedinsightsthatcontributedtotheanalysis.

There are nearly a thousand funded SaaS companies in India, of which ten have unicorn status, with a valuation of over $1 billion. These startups generate about $2-3 billion in total revenues and employ nearly 40,000 people.

Of the $3 trillion global enterprise IT and communications spending market, software, including SaaS, constituted $600 billion in 2020, growing at 8% per year – almost twice as fast as the overall market. While software comprises only 20% of the global market in terms of spend, it drives 47% of the total value-creation across spend segments, thus representing the most attractive segment in terms of
enterprise value. Even at the peak of the Covid-19 pandemic, software and SaaS has been the highest-performing category in the technology, media and telecom (TMT) industry.

The Covid-19 global crisis has created an unprecedented push towards SaaS, with companies across the spectrummovingtoonlineandremotework.LegacysoftwareplayersaretransitioningtoSaaS,delivering further impetus to the industry. SaaS is expected to generate about 80% of software revenues by 2030, up from about 35% today. We expect digital transformations to drive a 60% increase in enterprise tech intensity over the next 10 years. As a result of these broad secular trends, the global SaaS market could be worth about $1.3 trillion by 2030 led by growth in content, collaboration and remote work enablement software.

Over the last one year, Indian SaaS companies have leveraged tailwinds to reach unprecedented heights in terms of scale and scope. Six new SaaS unicorns were born during the pandemic: Postman, Zenoti, Innovacer, Highradius, Chargebee and Browserstack. In 2020, $1.5 billion was invested in Indian SaaS companies, representing a 4X jump over the last two years.

While these numbers are impressive, the future looks even brighter. If Indian SaaS providers execute to their full potential, they could generate annual revenues of $50-$70 billion by 2030 and win 4-6% of the global market. Based on recent public SaaS company revenue multiples, this represents a value-creation opportunity of as much as $1 trillion. This opportunity in such a short period could rival the value created by the larger Indian IT services industry by 2030, according to CapIQ data. Achieving this growth would require expanding the number of Indian SaaS unicorns by 10X by 2030.

The industry could achieve this by strengthening its market position in traditional growth areas such as horizontal SaaS – CRM, ERP and collaborative applications, growing in the US and UK markets as well as Asia and MEA, and capturing additional opportunities across segments such as new growth vectors such as data management and integration in middleware horizontals. Indian SaaS startups also have a “right to win” in large sectors such as developer tools & vertical SaaS by virtue of the country’s rich legacy of IT services and vast pool of developers and professional services employees. The success of unicorns such as BrowserStack, Postman and Zenoti in these segments is a sign of things to come.

While the outlook is promising, there are four significant challenges that need to be overcome for the startups to realize their true potential.

Need for more investment and exit routes
Investments in the Indian SaaS industry are rising, with about $1.5 billion in VC funding being invested in 2020 alone. A lot more would be required to keep this momentum going. India may likely need to triple or quadruple funding to achieve its full potential in SaaS. The Indian SaaS space also has had limited exits via acquisitions, buyouts or IPOs so far only 5-10% of Indian companies had exits in the last decade, compared to 20% of their US counterparts. Significant development of exit routes could drive the virtuous cycle of value-creation.

Startups need to shift to a growth mindset
Onaverage,IndianSaaScompanieswithannualrevenuesofunder$5millionaregrowingatonlyabout 50% compared to 150-200% for their global peers. To reach 20X multiples, Indian companies may need togrowsignificantlyfaster.Thereportshowsthat IndianSaaScompaniesareunderinvestingintheir
go-to-market efforts: those with revenues under $5 million spend only about 25% of revenues on GTM
compared to 80-90% spent by global leaders. We believe this underinvestment is causing Indian companies to miss growth opportunities.

Inparallelwithinvestingmoreonsalesandmarketing,IndianSaaScompaniescouldupdateandupgrade their mindset and policies around pricing, go-to-market motions and building out regimented and replicablebest-of-breedplaybooksfordemandgeneration,salesproductivityandproduct-ledgrowth.

Product management and customer success talent pools are critical
To keep pace with global competitors, India could increase talent pools by three to six times in product management, R&D, sales and marketing, and services and support. This is a major challenge. At a global level, best-in-class project managers serve as “mini CEOs” for their products, while Indian SaaS companies tend to rely on engineers turned product managers who have strong technical skills but lack the business orientation needed to compete on the global stage as PMs. Per the report, 77% of SaaS leaders in India say their biggest challenge is ramping up critical talent, including product managers and lead specialists.

All stakeholders working in tandem to realize full potential
To thrive in the disruptions likely to play out in the next five years, the entire industry could take concerted actions.IndustryassociationssuchasSaaSBOOMiandNASSCOM,investors,corporateenterprisesand the government could work together with startups to help India emerge as a clearwinner.

Ifthesechallengesarehandled,SaaScouldwellbeapreeminentindustrythatisalarge-scaleemployer oftalent,contributessignificantlytoIndia’sGDP,andcreatesunmatchedglobalproductsandplatforms.

Praveen Dansil

Praveen Dansil

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