Investment in Indian SaaS companies to grow 170% in 2021

Investment in Indian SaaS companies to grow 170% in 2021
© Provided by Business Today Investment in Indian SaaS companies to grow 170% in 2021

Amid spike in digitalisation demand post pandemic, investment in Indian Software-as-a-Service (SaaS) companies is on course to grow by 170 per cent in 2021 to $4.5 billion, according to a new report by Bain & Company. This is significantly higher than the 31 per cent growth seen in 2020 and 62 per cent in 2019. The investment growth in 2021 is led by a sharp increase in deals volumes and high value deals larger than $50 million.

Led by strong investor support, the Indian SaaS companies are likely to touch $30 billion in revenue, capturing 8 per cent to 9 per cent share of the global SaaS market by 2025, according to the Indian Saas Report 2021.

It attributed the increased investor interest in the SaaS apace to increased growth in exit opportunities for investors and high capital efficiency, among other reasons. The number of Indian SaaS exits doubled from six in 2018 to 12 in 2021, with the Freshworks initial public offering (IPO) initiating a new wave of exits. Girish Mathrubootham led Freshworks raised $1 bn through Nasdaq listing in Sep 2021. Gupshup is expected to go public in the next 12-18 months.

Investment in Indian SaaS companies to grow 170% in 2021
© Provided by Business Today SaaS companies in India

Besides, the Indian SaaS firms have excellent ARR-to-funding ratios, in line with global SaaS peers, with select Indian companies even outperforming their US counterparts. In 2021, more than 35 Indian SaaS companies had an over $20M annual recurring revenue (ARR)—a sevenfold increase over five years. Of this between seven and nine companies reached the $100 mn annual recurring revenue versus just one to two companies five years ago.

The fact that Indian SaaS companies are building a talent pool of professionals with SaaS-relevant skills is also fueling investors’ interest. SaaS companies currently employ more than 62,000 people in India and more than 250 new Indian firms have been founded by former employees of Indian SaaS companies and now employ more than 5,000 people.

Investment in Indian SaaS companies to grow 170% in 2021
© Provided by Business Today SaaS companies in India

The top 10 investors’ share in total deal value across 2019-2021 was 30-35 per cent, with Tiger Global (by value) and Sequoia (by volume) being most active over 2020-2021.

Within the overall Indian SaaS landscape, horizontal business software including — enterprise collaboration, events tech, conversational artificial intelligence (AI), and human resources (HR) tech – remained a key driver of investments, as businesses look for solutions for a post-pandemic world.

 Other verticals in Indian SaaS include horizontal infrastructure software providers for cybersecurity and development tools; as well as vertical-focussed software providers for e-commerce, logistics and healthcare enablement.

Growth is primarily driven by an increased number of deals for vertical business software and larger deal sizes for horizontal business software.

Also read: Exclusive: After Freshworks, Zoho says RBI should provide some leeway on new auto-debit rule

Also read: CoreStack closes $30 million funding round led by Avatar Growth Capital


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