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

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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. Early in 2019, Freshworks* became the first VC-funded Indian SaaS company to breach this milestone. Druva followed suit soon after, and there are at least half a dozen Indian SaaS startups that are lined up to emulate Freshworks 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.

Year Revolved Around Investors

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 Salesforce.com, 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.