The Ken recently covered the journey of Freshworks*, India’s leading SaaS (Software as a Service) startup, from zero to $100 million revenue. This $100 million figure is important beyond the nominal token value of touching a “nine-figure” milestone. In the SaaS world, this is the point at which a company can realistically explore floating an IPO. Entering the public market is a rite of passage that marks the point where a fledgeling startup transforms into an established company. It’s where the big boys play.
While an IPO is all but imminent in the near future for Freshworks, a question that is often asked is whether this event is a “swallow” or a “summer”? Are there other Indian SaaS startups that can crack $100 million in ARR (annual recurring revenue) and an eventual IPO? Can India mint more such SaaS stars?
Let’s try to find an answer.
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 reveals that spending on SaaS in customer relationship management (CRM) alone will 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 “SaaS is eating software”.
And as the global SaaS goldmine grows, plenty of Indian companies are also looking to get in on the action. According to a study by US-based data storage provider NetApp and management consultancy Zinnov, a significant chunk of the 2,300 Indian B2B startups that mushroomed since 2014 were SaaS plays.
Despite this, the revenue share of Indian SaaS startups amounts to just about 1% of the overall pie. There are, as with most things, two ways to look at it. Most obviously, 1% isn’t a lot to write home about. Conversely, it also indicates significant headroom for growth. A combination of macro-economic factors and the emergence of Indian SaaS unicorns such as Freshworks and Druva are portents of better days ahead. A world in which Indian SaaS startups have a bigger seat at the table.
Paving the way
The first generation of Indian SaaS startups was markedly different from later SaaS plays in two particularly significant ways.