Indian SaaS cos seeing increase in PE/VC investments
Published 12 February 2021
In a pandemic-hit year, Indian Software-as-a-service (SaaS) companies are seeing a growth in investments, as companies increasingly embrace digital.
According to a report by global consultancy firm Bain and Company, despite the onset of Covid-19 pandemic, Software-as-a-Service (SaaS) area has drawn 20 per cent of investments in the first half of 2020. In comparison, in H1 of 2019, SaaS companies attracted 15 per cent of investments.
Arpan Sheth, partner and leader of Bain & Company’s Asia-Pacific Technology, Vector and Advanced Analytics practices, said: “India now has a thriving ecosystem of enablers which consist of both domestic and global SaaS investors, over a hundred SaaS angels with four or more investments, incubators and accelerators and SaaS development initiatives by communities such as SaaSBOOMi.”
Bhoomi means ‘land’ in Hindi.
In effect, the impact of these enablers were some of the key ingredients in SaaS ventures’ faster growth trajectory in recent years, with over 50 companies having breached the $10 million Annual Recurring Revenue milestone. Additionally, in the last five years, the number of funded SaaS companies has doubled while companies drawing Series C or later stage capital have quadrupled.
Extrapolating this growth, Bain estimates that Indian SaaS firms may clock $20 billion by 2022. While Bain had said in a survey last year that SaaS emerged as the top priority technology sub-sector of focus in an investor survey, this time around Covid-19 has given that extra impetus.
“SaaS companies are transitioning into remote selling, finalising large deals digitally, and are revving up their sales engines as companies globally rewire their business strategy around technology,” said Prabhav Kashyap, Associate Partner, Bain & Company. Voxta, an AI-based voice bot startup has bagged a contract from several state governments.
“Our voicebots on call centers or mobile apps, can capture data like age, area from those who cannot type. These voice bots can be configured in 9 Indian languages, covering 90 per cent of the country,” said Kavita Reddi, co-founder, Voxta.
The SaaS solution market which was worth $407 million in 2016 has grown more than three-fold and is now in excess of $1 billion in 2020, according to indiustry body NASSCOM. Vistaar, a Bengaluru based non-deposit-taking-NBFC focussed on lending to small businesses has raised close to Rs 550 crore this year.
Indian homegrown SaaS companies such as Zoho and Freshworks are testimony to this growth, when much of the attention was focussed on consumer-tech and e-commerce focussed startups in the country. Further, first-gen founders, such as Sridhar Vembu of Zoho and Girish Mathrubootham of Freshworks, have played a pivotal role in India’s SaaS journey by building a community of entrepreneurs, which led to the development of many new ventures and job creation.
For example, Freshworks created an entrepreneurship cascade of more than 25 companies, including Voonik, Revv and SurveySparrow, which in turn have already created 500 to 1,000 jobs.Another reason for the growth in B2B startups could be attributed to stronger business models and significantly less cash burn when compared to B2C startups. “Entrepreneurs have a different mindset and having worked in the enterprise tech segment, they are better able to address pain points that an organisation faces in its journey to digitise its business processes,” said Kashyap.
The increased push for digitalisation is seeing a growth in investments in Indian SaaS companies.
Lalit Reddy, partner and leader in Bain India’s Private Equity and Digital Delivery practices said:“SaaS in India has recently witnessed significant funding traction, surpassing $1.3 billion of annual investment in 2019. Horizontal business software was the largest sub-segment, accounting for two-thirds of all SaaS investment and vertical-specific SaaS grew the fastest, albeit on a small base. Even amidst Covid-19, SaaS has been a prominent investment theme with a growing share of venture capital (VC) and growth.
VistaarFinance, Bengaluru based non-deposit-taking-NBFC focussed on lending to small businesses recently raised $30 million through External Commercial Borrowing (ECB) from FMO, the Dutch entrepreneurial development bank, making this amongst the larger such transactions in the MSME segment last year. Vistaar has now raised over Rs. 550 crore of debt financing and these funds will be deployed to lend to small businesses across the country, especially in this time of need.
This fundraising is a strong endorsement of Vistaar’s sustainable business model, risk management capabilities even during a pandemic, its ability to grow in the current challenging and critical times, said Brahmanand Hegde, Executive Vice Chairman, VistaarFinance.
This is the second line of funding from FMO to Vistaar. Similarly, MagentaBI, the Ahmedabad based SaaS platform, has raised close to $80,000 in seed funding from several investors including Santhosh G,a prolific Angel Investor, Manoj Agrawal (CFO, HN Safal Group) and Sachin Chaturvedi (Promoter, Prarambh Group).