MUMBAI/DELHI— Dec. 7, 2021— Investments in Indian Software as a Service (SaaS) rose to $4.5 billion in 2021—an increase of 170% from 2020, with growth primarily driven by a surge in the number of $50 million + deals, according to a new report by Bain & Company titled, “India SaaS Report 2021: SaaS companies will lead India’s next wave of technology giants”, released today. The report explores the Indian SaaS landscape which continues to mature rapidly, with more companies reaching larger scale and driving heightened investor interest. This interest spans both, early-stage Indian SaaS companies with an 85% increase in average value of seed rounds and later-stage SaaS deals with a 20% increase in share of Series D+ funding rounds, over 2019.

Over the past five years the number of SaaS firms have doubled, and more than 60 SaaS firms have received Series C+ funding. In 2021, more than 35 Indian SaaS companies had $20 million + annual recurring revenue (ARR). The top 10 investors’ share in total deal value across 2019–2021 was 30%–35%, with Tiger Global (by value) and Sequoia (by volume) being most active over 2020–2021.

“With heightened interest in SaaS, India has witnessed the emergence of dedicated SaaS-focused funds as well as participation from new investor categories, including corporate venture capital (CVC) and sovereign wealth funds. Investors are also increasingly active across investment stages, with traditionally early-stage investors now focusing on growth investments and later-stage investors participating in earlier rounds. This strong demand for high quality SaaS investment opportunities also means, that beyond capital and network access, investors increasingly offer ‘value add’ operational support in areas such as GTM, product, and recruitment to meet rising expectations from founders and to participate in deals”, said Arpan Sheth, Bain & Company partner and leader of the firm’s India’s Private Equity and Alternative Investor practice.

According to Bain & Company’s analysis, India’s SaaS is driving value creation in four keyways. The number of Indian SaaS exits increased by 100% from 6 in 2018 to 12 in 2021 with Freshworks’ initial public offering (IPO), therefore initiating a new wave in exits. Further, Indian SaaS firms have exhibited high capital efficiency with excellent ARR-to-funding ratiosin line with their global SaaS peers. Select Indian companies are even outperforming their US counterparts. Currently, these SaaS companies employ more than 62,000 people, which is in effect, helping to build a talent pool of professionals with SaaS-relevant skills, in India. In addition, more than 250 new Indian firms founded by former employees of Indian SaaS companies themselves, who now employ more than 5,000 people.

From an investment standpoint, SMB-focused India for India and enterprise-focused India for the world companies, are attracting most of the funding with 65%–70% volume share in 2021. Horizontal business software remains the largest subsegment accounting for more than half of all SaaS funding in India, while vertical business software and horizontal infrastructure software constitute the remainder. While horizontal business software growth is due to higher average deal values, vertical business software has seen approximately 100% year-over-year growth driven by larger number of deals and several Indian success stories continue to emerge in the space. Within horizontal business software, there is growing interest in subsegments including enterprise collaboration, events tech, conversational AI, and HR Tech. EdTech, Healthcare tech, logistics tech and e-commerce enablement are gaining traction in vertical business software. And within the horizontal infrastructure software space, cybersecurity, DevOps and dev tools, and data management and observability are emerging themes.

Aditya Shukla, a partner and leader in Bain India’s Private Equity practice said: “Successful SaaS companies often exhibit a critical combination of strengths and characteristics. These successful firms have a well-defined vision and strategy, a differentiated product offering and play in a large market with ample headroom to grow. They invest time in achieving the right product-market fit, designing pricing and GTM actions to support the product, while maintaining a strong focus on customer success. Most importantly, they endeavor to set up an employee-centric global organisation which enables a culture of innovation and teamwork”.

Bain’s research indicates three key areas of commercial focus for founders of SaaS companies, as they scale. Getting these business elements right can deliver tremendous business growth. The first imperative is to choose a pricing and packaging framework that serves a broader range of customer segments and promotes an increase in revenue and profit through suitable choices across price meter, discounts, and packages. The second, is to enter adjacencies which can enable companies to continue their growth trajectory by venturing into new geographies or product segments. Finally, setting up effective channel sales to expand into new geographies or customer segments and improve efficiency at scale.

The report builds on pricing and packaging strategies for SaaS companies around three key components. Packages that offer the right coverage across customer segments, pricing levels that establish the correct market positioning, and price meters that drive value as usage grows. Product and geographic expansion choices are typically determined by commons factors including market size and growth, competitive landscape, and regulatory environment. For geographic expansion, companies should focus on product-market fit and GTM, including price localization in the target geography. For product expansion, companies should evaluate cross-sell opportunities and use case synergies. Channel sales can be a powerful tool for SaaS companies to drive growth. However, no “one size fits all” approach to indirect sales exists. Designing a powerful channel sales strategy involves making the right decision across route-to-market (RTM) strategy, partner choice, program design, and coverage models based on product characteristics.

The Indian start-up ecosystem remains robust, with a strong base of funded start-ups and unicorns. An increase in engineering graduates and Internet users is expected to further support the growth of this ecosystem. Specifically, for SaaS, India has a thriving ecosystem of enablers comprising 400+ SaaS investors, 500+ incubators and accelerators, and numerous communities and government initiatives to foster the ecosystem.

The report highlights the following initiatives which will be required to further strengthen growth of SaaS in India:

• Government: Focus on talent skilling and demand generation along with simplification of tax and IPO regulations
• Investors: Help founders by providing mentorship, funding, and access to founder and investor communities and publishing playbooks to help refine products, sales strategy, and the hiring process.
• Founders: Enable knowledge sharing and networking to help one another grow efficiently.
• Corporates: Provide funds, training, and mentorship to Indian SaaS companies.
• Universities: Incorporate vocational training in curriculum to produce graduates with SaaS-relevant skills Initiatives that focus on improving talent are especially critical, given that the talent demand-supply gap remains a key issue for Indian SaaS companies. To meet the growing demand for talent, India should focus on increasing the number of graduates with relevant skills while reskilling the existing talent pool to better equip them for an evolving workplace. Countries such as the US and Canada have successfully implemented initiatives across stakeholders to support SaaS growth. Israel has also developed a robust SaaS ecosystem, especially in cybersecurity, through targeted interventions from government and universities. Going forward, India can develop a true niche in horizontal infrastructure, vertical businesses, and SMB-focused companies. Although the Indian SaaS market is rapidly maturing, room for ample growth still lies ahead.

To receive a copy of the report or arrange an interview with its authors, please reach out to:

Aparna Malaviya, Bain & Company, India | +91 9820373038 | aparna.malaviya@bain.com

Calla Payne, Bain & Company, Hong Kong | +852 60207693 | calla.payne@bain.com