DC Discusses at The Montgomery Summit: The future of SaaS

"We anticipate India will become the global leader in SaaS within the next five years, accelerating M&A opportunities for the sector"

Background

Software-as-a-Service (SaaS) is at the forefront of the next wave of disruption in India's information technology (IT) industry. With the expansion of India's digital economy and the adoption of hybrid workspaces post-COVID, there is a noticeable shift towards cloud-based platforms.

This global phenomenon has presented a unique opportunity for India to leverage its SaaS momentum and emerge as a major player in the market, with companies like Zoho, Freshwork, and Druva experiencing rapid growth.[i] With 1,600 funded companies generating an estimated $12 billion in ARR, India now has the world's second-largest SaaS ecosystem.[ii] According to a report by SaaSBOOMi and McKinsey, ‘Shaping India’s SaaS Landscape Report’, the Indian SaaS industry is projected to generate revenue of $50-70 billion and capture 4-6% of the global SaaS market by 2030, potentially creating up to $1 trillion in value.[iii]

India is poised to establish itself as the next global SaaS hub with such promising figures. We explore below what is driving this growth.

Growth drivers

Indian small and medium-sized SaaS companies have caught the attention of the US market by excelling in digital and online sales as a result of go-to-market (GTM) playbooks. Organizations like SaaSBOOMi, a community of founders and product builders shaping the SaaS ecosystem, have made successful efforts of spreading GTM playbooks within the Indian SaaS start-up ecosystem. This can help start-ups scale their business more quickly and efficiently, presenting a competitive advantage in the crowded and rapidly evolving SaaS market. Go-to-market strategies include:

• Price leadership: Competitive pricing strategies, driven by a highly talented workforce that costs 50 - 70% less than counterparts in the US
• Product leadership: Organizations are addressing market gaps with modern platforms that can offer more features and functionality at the same price point as their competitors
• Customer support: Enhanced customer support has edged India’s SaaS start-ups ahead of their competitors, with organizations like Freshworks' using chatbot capabilities and existing data, allowing customers to receive in-depth solutions to their queries[iv]

What to expect…

Although India has a clear path to becoming a leader in SaaS, there are still operational obstacles to overcome such as the shortage of skilled tech workers, coupled with the ‘Great Resignation’ equipping employees with increased leverage over tech companies.

Notwithstanding the challenges, SaaS companies are poised to become the next wave of technology giants in India. SaaS funding levels are predicted to double by 2027, building on the record levels observed in late 2021 and early 2022. The total funding for Indian SaaS companies in 2022 was $4 billion, nearly quadrupling investment volume from 4-5 years ago [v]. Total ARR of all Indian SaaS companies is expected to reach $35 billion by 2027, at a rate of 20-25% p.a. [vi]

With heightened investor interest, the Indian Software as a Service (SaaS) landscape is rapidly maturing as more companies reach larger scale. We anticipate M&A activity to materially increase across the spectrum, including acqui-hires, strategic sales, and buyouts driven by strategic buyers and specialized mid-market and bulge-bracket private equity firms. Additionally for those SaaS companies that achieve at least $100 million ARR scale, we are also starting to see the emergence of a vibrant IPO market in India.

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[i] https://www.ceoinsightsindia.com/news/indian-saas-firms-expected-to-touch-20-billion-revenue-by-2022-nwid-4267.html

[ii] https://www.fortuneindia.com/enterprise/indian-firms-to-capture-8-of-global-saas-market-in-next-5-years-report/111284

[iii] https://saasboomi.com/saas-landscape-report/

[iv] https://inc42.com/buzz/girish-mathrubootham-on-how-tech-can-help-d2c-brands-bring-offline-experience-for-online-store/

[v] https://inc42.com/features/saas-startups-unlock-india-opportunity-2023-uncertainty/

[vi] https://saasboomi.com/saas-landscape-report/