Indian SaaS startups raise record $4.5 billion in 2021: Bain report

Asia's Tech News Daily

#deals, #funding, #SaaS, #software, aggressive valuation

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Indian software-as-a-service startups have raised a record $4.5 billion from investors in 2021, nearly three times the previous year, led by innovation, access to capital, and a larger market size, according to a report from consultancy firm Bain and Co.

The year also created six SaaS unicorns being valued at over a billion dollars or more. This was as many as the last two years put together, indicating an increased momentum in the space as they address global markets, predominantly in the US and Europe.

#deals, #funding, #SaaS, #software, aggressive valuation

“What is interesting is that you are seeing scale from Indian SaaS. There are many companies with $25-30 million ARR (annual recurring revenue), and quite a few with over $50 million and even $100 million,” Aditya Shukla, partner at Bain, told Moneycontrol.

“These are companies that have not just found product-market fit (the first sign that a company’s product is viable) but have also scaled. They have found acceptance from a wide variety of customers and buyers,” he said.

#deals, #funding, #SaaS, #software, aggressive valuation

While most SaaS companies have emerged from traditional areas such as customer relationship management (CRM) and sales enablement, there are companies now in specialised software, both for niche areas, say salon and spa  management (Zenoti) or newer technology needs such as managing tech stacks and testing applications (LambdaTest, Postman).

Large SaaS deals have also happened at aggressive valuation multiples, routinely at 30-40 times revenue and sometimes even more, as companies raise rounds based on distant-future predictions and optimise a frenzied deal-making environment.

“A lot of these companies are category creators in areas such as DevOps (software development and IT operations), infrastructure and new verticals. SaaS companies are addressing really large markets. Even for classic CRM or ERP solutions the penetration is low, so there is headroom for growth. That leads to some of these multiples,” Shukla said.

#deals, #funding, #SaaS, #software, aggressive valuation

However, large listed SaaS companies in the US with $500 million to a billion dollars in annual revenue usually trade on lower valuation multiples, therefore some of this enthusiasm could temper as companies mature, he added.

Newer SaaS startups are also a result of employees at older SaaS firms leaving to start up, with over 500 such employee turned founders, the report said.

#deals, #funding, #SaaS, #software, aggressive valuation

Shukla, however, anticipates that technology talent could become the companies’ biggest challenge. Talent shortage is such an acute problem that some SaaS startups are specifically aimed at solving hiring challenges.

In the last two years, startups have also been building software for local markets – Indian customers and businesses, shifting from the US, which is where most companies earn their revenue from. Companies such as Classplus, Khatabook and Darwinbox are building software to digitise specific industries such as education, bookkeeping and human resources, respectively.

“Traditionally, the companies are focused on larger markets like the US, which has sophisticated buyers who will adopt software more easily. It is more challenging to convince Indian enterprises or small and medium businesses to adopt software. It is a value-conscious market,” Shukla said.

“But my sense is that it will take off, even if these companies don’t get as big as global SaaS firms, which cater to large market sizes,” he said.

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