The recent pandemic has changed the way in which we work. Organizations have been forced to rethink business models and how they serve customers. With the pandemic investments in technology have undergone a massive paradigm shift. Technology is no more an enabler but an integral part of survival and the ability to thrive in a rapidly changing business environment. Increasingly technology and digitization strategies are becoming key priorities for boards to deliver on.
Pandemic has hastened technology investments in most global companies. Companies have been launching digital transformation initiatives, new workplace access models or enhancing consumer experience etc. Remote working/digital economy/automation and supply chain enhancements have made accelerated spends in technology a reality and these trends are here to stay for the next decade. We are entering an era where technology enabled businesses and companies will drive larger value creation for all stakeholders.
Beyond new application areas emerging technologies like Cloud, data and analytics, artificial intelligence, machine learning and industry 4.0 are rapidly expanding the horizon of opportunity. The technology infrastructure in enterprises which underwent a large refresh with Enterprise Resource Planning is also ripe for change. While India has emerged as a global leader in outsourced IT services and the industry is poised to grow to $350 billion in the next five years, the opportunity arising from many of the areas outlined above will be much larger and can easily be a $1 trillion market opportunity for Indian companies in the next decade.
Adoption of new technologies is enabling easier customer acceptance and hence technology is being democratized enabling much faster adoption. This augurs well for many smaller and midsize companies who can build unique solutions and reach the relevant markets through cost effective digital marketing initiatives. So overall the competitive landscape for technology solutions is becoming far more a level playing field with a diverse set of solution providers serving varied customers. Adoption of technology by small and medium enterprises worldwide is also creating a new set of demands which is being primarily serviced by SaaS (Software as a Service) companies.
The global opportunity which is evolving is being embraced by entrepreneurs and investors and this has led to a very strong positive momentum in the Indian startup ecosystem. According to the Hurun Index, India today ranks as amongst the third fastest growing startup ecosystem in the world and recently replaced the UK as No 3 country with 54 unicorns. Investment in SaaS companies increased 170% in 2020 and it’s expected to reach $ 4.5 billion in 2021. This interest spans across early stage companies with deal size increasing by 85% in the seed stage and later stage companies. Bain India SaaS Report 2020, says the number of deals which are beyond series D have also gone up by 20%.
The opportunity is large and spans across a wide spectrum. The areas which hold promise are as follows:
- Horizontal SaaS solutions: This covers areas like CRM, enterprise collaboration, HR tech, application and developer productivity. Many Indian companies have built solutions which have been built for companies in India, scale the business and subsequently started addressing the global market. Some examples in this space are companies like Zoho, Postman, Freshworks , Browserstack etc. Freshworks is a great example of not only addressing global markets but also gaining acceptance in overseas capital markets and was the first Indian SaaS company to be listed in NASDAQ and currently commands a market cap of close to $10 billion.
- Vertical SaaS solutions: These are solutions which address specific vertical related business processes. With tools being available for seamless data integration this is a great opportunity for Indian SaaS companies to identify the right niche in vertical segments and build solutions around those niches. Here again a number of Indian SaaS companies have built their products for Indian customers, scaled the solution and then started addressing global markets. Many of these companies have revenue ARR (Annual Run Rate) comparable to their global peers and hence are able to compete effectively with global competition. Some examples of companies which have achieved scale in vertical solutions are Eka software, Capillary Technologies, High Radius, ChargeBee etc.
- Technology enablement for global SME’s: this has largely been an untapped market for the technology industry and with the changes happening it presents a huge opportunity. Cost of technology is dropping and hence is becoming affordable to a larger spectrum of enterprises. Technology also enables SMS to compete more effectively with larger companies. Indian Companies like Khatabook, Open etc. are aggressively growing this market with ambitions to be present globally.
The Global SaaS market is about $150 billion and growing at a CAGR of 23% and according to Nasscom, India’s market share in this is now only at high single digits. The Indian market for SaaS products is also growing rapidly and will grow 6X by 2025. With the strong growth opportunities in India many resourceful entrepreneurs are demonstrating that they can build a business with Indian customers and then start addressing global markets. With the strong momentum demonstrated, Indian SaaS companies are expected to garner a market share of 19% by 2025 (Indian SaaS revolution 2021- Chiratae-Zinnov report).
What is enabling the rapid growth of 70% + in Indian SaaS? There are enablers which help this. The government has played a key role in nurturing and building a strong startup ecosystem. There is also a diverse set of investors both foreign and domestic who started focusing on supporting these companies. The talent pool available in India is another big advantage. Coupled with this is the emergence of serial entrepreneurs and professionals who worked with large global product companies and are willing to take the risk and venture into entrepreneurship.
The median revenues of global SaaS companies have doubled in the last five years, but their valuations have gone up 5X in the same period. The market for technology products is strong for the foreseeable future and hence the opportunity for Indian SaaS companies is immense. With the support of the strong ecosystem which is already in place the number of unicorns in India can easily grow 10X from the current levels in the next five years. The day is not far off when we will see over 1000 unicorns in the Indian SaaS ecosystem. Not only will these companies create significant value for the stakeholders but it will also create a large number of high-quality jobs which are of great value to the Indian economy.
When India becomes a $5 trillion economy can Indians SaaS companies contribute at least 10% to that? The answer is there’s a high probability. Indian entrepreneurs are fearless and have the courage and vision to capture global markets. There are great role models already within this Indian startup ecosystem and soon we’ll see the number of role models will rapidly increase. This will help us achieve a double-digit contribution to the $5 trillion economy of India and the mantra is simple – build for India – win the globe.
(The writer is Managing Partner- Mela Ventures, Chairperson, Nasscom Foundation and Member, VC Council, IVCA)
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