After an Annus Mirabilis, what does 2020 hold for Indian SaaS?

In 1954, Roger Bannister became the first human to run a mile in less than four minutes. This was an epochal moment because, hitherto, the common belief was that it was an impossible feat to achieve. In the immediate few months after, inspired by Bannister’s feat, a number of other athletes emulated him. So much so what was until recently considered impossible became not just possible but commonplace.

In SaaS (software as a service) terms, reaching the $100 million ARR (annual recurring revenue) is the equivalent of running a four-minute mile. In mid 2018, Freshworks* became the first VC-funded Indian SaaS company to breach this milestone. Druva followed suit in 2019, and there are at least half a dozen Indian SaaS startups that are lined up to emulate the two over the next year or so.

For Indian SaaS startups, 2019 was Annus Mirabilis–a “year of miracles”. A perfect storm of ingredients along all dimensions—markets, capital, strategy, macro-trends—provided a platform for Indian SaaS companies to thrive like never before.

A look back at 2019

While Freshworks represents the totemic lightning rod that inspires several other Indian SaaS companies to follow its path, there were several other tailwinds that powered Indian SaaS startups in 2019.

2019 saw a rising SaaS tide all over the globe. According to global research firm Gartner, the global SaaS market is currently worth just under $215 billion and is poised to grow exponentially over the next three years. By 2022, it’s expected to clock in north of $330 billion. The Gartner study identifies strong tailwinds that could indeed propel the global SaaS market to these new heights. More than a third of surveyed organisations see cloud investment as a top-three investing priority, and that by the end of the year, over 30% of technology providers’ new software investments will shift from cloud-first to cloud-only. 

Another Gartner survey estimated that spending on SaaS in customer relationship management (CRM) alone would reach approximately $42 billion in 2019. This represents 75% of the total software spend in the segment, continuing the rapid decline of on-premises deployments. 

If “software is eating the world”, it is clear that in 2019, “SaaS is eating software”.

Next, perhaps for the first time ever, 2019 saw an abundant supply of capital for SaaS startups in India across the entire spectrum from seed funding to $100 million cheques. The first generation of Indian SaaS successes—companies like FusionCharts, Kayako, Zoho and Wingify—were all bootstrapped companies. The lack of a large funding treasure chest to fall back on meant that these companies grew slowly, investing money towards growth only from internal accruals, and more often than not, capped out at around the $10 million ARR mark. 

The emergence of VC-backed Indian SaaS success stories like Freshworks and Druva, however, represents a new chapter. These companies raised hundreds of millions of dollars to fuel their growth and grew far faster and much larger than their bootstrapped predecessors. This success in turn has fuelled a virtuous cycle where most capital has entered the system via new investors looking to find the next Freshworks. 

2019 also saw the return of marquee investors like Tiger Global that have now adopted a sharp B2B/SaaS focus while picking new bets in India. This is in sharp contrast to their earlier bets like Flipkart, which were consumer tech plays. The year also saw the emergence of funds that were focused solely on Series B SaaS/B2B investments, reflecting the increasing maturity of the funding environment.

Sure, horizontal SaaS categories like CRM and collaboration have grown to gargantuan levels in the recent past (as evidenced in the size and scale of leaders like, which currently boasts a market cap of nearly $150 billion). But there has also been a sharp increase in the number of bets made in vertical SaaS categories—companies that focus on only one specific industry or domain—like Zenoti, which offers ERP solutions to spas and fitness centers and GoodMethods, which offers enterprise solutions to dental clinics. There are a number of other categories like this consisting of late adopters of technology that are now being brought up to speed by nimble startups like Veeva (a SaaS unicorn focusing only on the pharma industry) that replace either manual systems or ancient pre-internet software. 

The earlier conventional wisdom was that vertical SaaS is best suited for bootstrapped companies who can build small lifestyle businesses servicing this market. That myth was debunked in 2019 with the success of companies like Zenoti, which has raised over $50 million in funding and is now routinely closing annual deals worth $100,000 or more. Along the same lines, Capillary Technologies, a provider of CRM solutions only for retail customers, has seen increasing scale and maturity in 2019. 

Aneesh Reddy, co-founder and CEO of Capillary Technologies, says, “In 2019, we are seeing very large retailers and brands move to the cloud like never before in Asia as well. This year, we won our first four $1 million ARR+ customers, all of them in the last three quarters. Large enterprises which preferred on-premise/private cloud are now much more comfortable with multi-tenant SaaS. We are doubling down on focusing on large enterprises. We are also seeing customers signing up for annual upfront contracts as you see in the US and West, again a significant shift from the earlier pay-as-you-go/ try-and-buy behavior we saw mostly across customers in Asia”.

Next, there is the “plumbing opportunity” that Indian SaaS products are well suited for. While there is a gold rush in SaaS and there are thousands of SaaS companies starting up all over the world, these firms themselves represent a fertile market to sell into. “Sell pickaxes in the gold rush”. Companies like BrowserStack that offers mobile testing tools and Chargebee that offers invoicing software are startups that are riding this wave. 

Speaking to The Ken, Krish Subramanian, co-founder and CEO of Chargebee, highlighted the growing maturity and large opportunity of this market. “Our customers are other SaaS companies that use our solution for their subscription and billing needs. Over the last year or so, we have noticed that an increasing number of customers are now amenable to buying off-the-shelf products that they see as infrastructure components serving tactical objectives rather than strategic goals. This has resulted in more “buy” decisions compared to “build” decisions as companies were wont to do earlier,” says Subramanian. “Within Chargebee itself, we use more than one hundred SaaS products ourselves across all teams. This maturity in the market to focus on core differentiated capabilities for customers while depending on other SaaS companies for the other plumbing pieces is a huge shift that we are seeing currently,” he adds.

Then there is the India opportunity. Historically, India has been a poor market for software. Technology adoption among Indian enterprises was low and that was matched by a disinclination to pay for software in general. But 2019 saw the “Jio-fication” of India—a transformation fuelled by the troika of cheap mobile devices, cheaper broadband plans and ubiquitous payment infrastructure. Companies like Zoho, which have historically refrained from viewing India as a market, now see the country as a key market and are spending millions of marketing dollars to evangelise their solutions and benefits, something that was unthinkable a few years back. 

Finally, the fact that SaaS startups have been operating in India for a few years now has resulted in the creation of an India-specific SaaS playbook that leverages cost arbitrage to compete with global competitors. The model is simple enough—build products cheaply, sell online, allow free trials, use cheap labor to onboard customers and ensure success that fuels purchases. Then repeat the cycle with a product in an adjacent category. 

The likes of Zoho and Freshworks are pioneers in this desk-selling model that is best suited for selling SaaS solutions to the millions of small and medium businesses (SMBs) across the world. Prasanna Krishnamoorthy, founder of Upekkha, a firm that helps nascent Indian SaaS startups grow sustainably by adopting these tried-and-tested India-specific SaaS playbook techniques, has this to say, “Freshworks took two years and a million dollar of investment to get to their first million in revenue. Newer Indian startups are doing it much faster and more capital-efficiently. Three of four Upekkha startups from our first cohort have each grown from $100,000 ARR to over $1 million ARR in under two years”. 

While 2019 was a stellar year for Indian SaaS startups by any measure, what does 2020 hold?

A look ahead at 2020

According to a recent study by management consultancy Zinnov, 2,300 B2B/SaaS startups have mushroomed in India in the last five years. Beyond behemoths like Freshworks, Zoho and Druva, there are nearly two dozen SaaS companies in India that have scaled beyond $10 million in ARR. There is enough momentum to suggest that the day is not far off where there will be over a hundred Indian SaaS companies that have achieved initial product-market-fit as evidenced by an ARR of $1-2 million.

While these numbers might seem impressive in themselves, these are but a speck against the canvas of global SaaS—the revenue of all Indian SaaS startups put together is less than 1% of the global pie.

An optimistic way to look at this scenario is that this gives Indian SaaS firms plenty of headroom to grow. Krish of Chargebee is bullish, “To start with, startup founders need to develop a deep understanding of one buyer (individual, departmental), one domain, one customer type (small, mid-market, enterprise), and one region. I believe that most Indian SaaS companies are figuring this out well. The key is to sustain and get to this point without burning out (as individuals and companies). Once you get past the $1 million ARR mark there is a lot of belief to want to make it big. I see that happening with hundreds of Indian SaaS companies, which is why I am very optimistic about Indian SaaS companies making a mark at a global scale”.

Mature Indian SaaS startups like Freshworks are also discovering that there is still plenty of headroom in the SMB and mid-market segments that they play in. These firms are gradually moving upmarket (to mid-market or enterprise) or introducing additional product lines to existing customers, allowing them to leverage cross-selling opportunities with negligible incremental customer acquisition costs. This has allowed them to continue growing at the same scorching pace as before (Freshworks is said to have already breached the $200 million ARR mark in 2019 itself). 

Additionally, as Indian SaaS firms go upstream, they are discovering that there are significant incremental revenue opportunities through professional services layered on top of the core SaaS product that enterprises are amenable to pay for—given India’s traditional strengths in delivering outsourced global IT services, it is fair to expect that these large SaaS startups to capitalise on these openings. Also, access to large pools of capital allows Indian SaaS companies to consider the possibility of inorganic growth—acquiring startups to achieve scale or add heft to strategic areas.

In terms of opportunities in the local Indian market, the sheer scale of the “Jio-fied” Indian economy and the fact that there is so much headroom for adoption of technology also presents interesting opportunities for new types of orthogonal business models. For instance, KhataBook, which offers a mobile-based inventory management system for kirana (mom-and-pop) shopkeepers doesn’t charge its users anything for the software and instead hopes to make money by offering value-added services such as credit facilities on top of the core free platform.

On the flipside, markets are more competitive than ever before. In 2011, when Freshworks started out, there were around 50 competitors globally fighting for the SaaS market. Today, that number is well over 600. Even as markets are much bigger than ever before, large portions of these markets have been cornered by prominent vendors such as Salesforce, ServiceNow, Workday and Zendesk, all of whom are growing rapidly, even relative to the fast-growing space they occupy. 

The old guard enterprise companies such as Adobe and Microsoft have also undertaken transformational journeys to morph from desktop to cloud software and have already built SaaS-first businesses that have annual recurring revenue exceeding $10 billion.

So where does that leave Indian SaaS startups looking to compete in these red oceans?

It is clear that the large horizontal SaaS market spaces such as CRM and support and collaboration are segments that Indian SaaS startups will struggle to win against well-entrenched, far larger competitors. 

But there are headwinds beyond competition.

For one thing, the Indian SaaS playbook is now getting commoditised. Startups from all over the world are adopting the same desk-selling/inbound marketing techniques and are competing on an even keel. The cost arbitrage advantage that Indian startups had is rapidly eroding as foreign startups figure out and apply some of these playbook techniques, and talent becomes increasingly expensive in India itself.

Krishnamoorthy of Upekkha says, “Talent is a big challenge for Indian SaaS companies. New skills and roles such as Inside Sales, SDR, Product Marketing & Customer Success are pivotal for SaaS growth. Skilled folks in these areas are in big shortage and/or expensive”. The flood of capital into Indian SaaS companies has inadvertently created a situation where the cost of talent has shot up. Reddy of Capillary Technologies echoes this concern, “The market for tech talent in India is a definite concern. I think the market is becoming too expensive and needs a correction, especially in Bengaluru”.

While these might seem like minor quibbles against a scenario that is overwhelmingly positive for Indian SaaS companies, there might be one point of caution that merits attention. While SaaS seems to have come of age in India in 2019, the focus of young Indian SaaS companies seems to be on diligently following hand-me-down playbooks by rote rather than invest time and effort on conceiving and building original products. 

While SaaS playbooks are useful starting points, founders should not miss the forest for the trees and treat these tactics as the be-all and end-all of their business. Instead, they should first focus on the craft of product building through a customer-centric perspective. Founders should not lose sight of the fact that building a product that is valuable to customers is the biggest determinant of startup success. 

The most promising next-generation SaaS companies in the world today—companies like Superhuman, Notion, Airtable, Zoom and Figma—are completely different from the previous generation of marquee SaaS startups. They are reshaping the “future of work” using first principles around customer and market development techniques that are drastically different from the methods that SaaS companies like Salesforce, Zendesk or Workday pioneered over the last decade. Rather than blindly follow the possibly-obsolescent playbooks that succeeded in the past, Indian SaaS companies need to come up with their own original playbooks and worldviews to succeed over the next decade.

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