The migration of enterprise software from an on-premises model to a model hosted on a central cloud—a trend that began about 20 years ago with Salesforce as the torchbearer—has continued unabated, with plenty of wiggle room. As a result, SaaS has been in flux lately.
Bessemer’s State of the Cloud 2021 report shows that the BVP Nasdaq Emerging Cloud Index, an index designed by the venture firm to track the performance of emerging public cloud software companies, hit a record $4 billion on Feb. 2 trillion has passed.
The median valuation multiples for SaaS companies went from ~10X of ARR in 2016 to ~30X in 2021. Today, more and more exciting new SaaS companies are emerging.
Amid this global SaaS boom, Indian companies have found their moment in the spotlight. There is no doubt that 2021 will be seen as a defining year for Indian SaaS, with companies like Zenoti, Chargebee, MindTickle and BrowserStack, to name a few, joining the esteemed ‘unicorn club’ in the private markets, and Chennai-based Freshworks completes successful IPO on Nasdaq with a valuation of over $10 billion.
As an early-stage VC fund, SaaS is and will remain an important investment theme for us. A few weeks into 2022 is a good time to step back and think about Indian SaaS – what it looks like today and what lies ahead in the future.
Right now, there are four trends that we find particularly exciting within the Indian SaaS ecosystem.
One, there is a very high investor interest for SaaS today, compared to even five years ago; we have a hard time finding an investment company that is not willing to invest in early stage SaaS businesses. As these companies grow, they have also attracted investment from global investors with deep pockets such as Softbank, GGV, Insight, etc.
two one significantly mature SaaS ecosystem – startup teams are often made up of experienced operators who have “been there, done that,” and can scale their startups much faster than before. There is also a lot more tribal knowledge of founders who have recently scaled up and are actively looking to give back.
Three, there is more than one flavor to India SaaS. Freshworks defined the first playbook, which focused on targeting US SMBs with a great product and unparalleled customer success; today we see companies that sell from scratch to enterprise customers, companies that are category creators, open source companies and companies that go straight to their users as part of their GTM strategy
Finally, the Indian startup ecosystem offers a fertile early adopter market for Indian SaaS startups. Scaled startups are advanced software buyers who choose the best-in-breed from a global pool. Consequently, product maturity levels are higher, making Indian SaaS companies more competitive in global markets.
5 exciting themes for the future
Potential for AI-first software companies
A confluence of concurrent factors — an exponential increase in data availability, more storage and bandwidth at a lower cost, increasing algorithmic sophistication — has created the perfect set of conditions for AI to create business value for narrowly defined problems, as opposed to a ubiquitous one. AI for general use.
Such solutions aid human judgment and lead to effectiveness gains, unlike the efficiency focus of traditional software. The magnitude of the impact can therefore be much greater and there is potential to rethink business processes.
As such, we believe AI will lead to the next major category in software, similar to the cloud. We also believe that India, with a large pool of skilled manpower to assist with data and model management, as well as post-deployment support – which is a feature and not a bug – is poised to capitalize on this trend.
Data-as-a-service (DaaS) companies
Both the availability of data – driven by a greater number of connected devices and lower storage costs – and the possibilities for its use by organizations, with a focus on data-driven decision-making and input to AI systems, are growing exponentially.
That creates a huge opportunity for DaaS companies. Within DaaS, we believe that three characteristics can lead to differentiation and excitement: providing non-trivial insights based on third-party or public data; merging data from various hard-to-access sources; and providing proprietary information.
On the other hand, collecting easily accessible data from third parties is not enough foundation to build a meaningful business. Unlike SaaS, where the end-of-market situation often becomes oligopolistic, data companies are highly fragmented because barriers to entry are lower.
It’s important for DaaS companies to proactively think about what can help them transition to a more SaaS-like business. A good way to do this is to move from just a data provider to a workflow provider, which ZoomInfo has done very well.
Developer focused software
There are a few tailwinds that are driving a shift to more “developer-centric” software. Firstly, software has and continues to ‘eat the world’. Second, the rapid increase in the number of developers – it is expected that there will be 100 million software engineers worldwide by 2030.
Third, the continued shortening of software development lifecycles and a marked ‘leftist shift’ from operations, networking and security to product development. Finally, the increased purchasing power of developers, which has led to the emergence of more and more developer-focused companies over the past 18 months.
Specific topics we’re excited about include data and ML Ops tools, low-code and API-led development tools, and autonomous/scriptless and continuous testing.
India has created tremendous value by outsourcing repetitive tasks that do not necessarily have to be performed on site, and has benefited from a large English-speaking, skilled and cost-effective talent pool. Two trends are changing that.
First, machines can do 70-80 percent of what humans do in a traditional BPO. Second, the growth of flexible, on-demand work preferences has led to the creation of a model with no fixed resources. As such, we are very optimistic about the emergence of platform companies that are service-oriented in their revenue profile, but very product-oriented in their delivery.
Software for the bottom of the pyramid
There have been a number of trends in recent years that have led to what is popularly known as the Product Led Growth (PLG) GTM movement. With the advent of Google AdWords, community marketing and the growth of App Store ecosystems, it has become easier to discover end users.
Increasing software adoption among solopreneurs and small business owners, and increased end-user empowerment to buy/use their own software within an enterprise, has led to greater buyer-user convergence.
Finally, the emergence of maturing product-driven growth playbooks has led to customer conversions through smart pushes, reducing the need for manual interventions.
It is important to note that software is a global business, and wherever you start, you must compete with the best to create sustainable institutions.
As Indian SaaS gains more global attention, scaled global players are saying goodbye to Indian companies’ playbook. As remote/flexible working is gaining traction, mature US SaaS companies are embarking on key Indian operations early in their journey. This just means that there is a greater responsibility on Indian companies to be futuristic, innovative and perform to higher standards.
All things considered, there is huge potential for Indian SaaS companies in the near future. I look forward to many more Indian companies becoming industry leaders and doing decacorn IPOs, not just Freshworks!
The insights in this article were gathered from a discussion among senior industry executives, who are part of the Stellaris Founder Network.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)