From India, with love — SaaS Version

Global SaaS companies have been through a roller coaster of a ride these last few years. Revenue multiples, a key indicator of market appetite across public and private investors have fluctuated wildly as markets continue to calibrate the physical/economic repercussions of the last few years.

Covid initially saw SaaS valuations skyrocket with revenue multiples reaching a record?median?high of 17x ARR in Aug ’21 as large stimulus packages and increased digital spending propelled SaaS companies to the top of global indices. Today, most SaaS and Cloud leaders are down 50%+ from their all-time highs. A reality check ushered in by increased interest rates, the anticipated reduction in business spending, and an increasingly recessionary economic outlook for the global economy.

The ripple effect of this valuation reset will no doubt be felt across private SaaS markets and the broader tech ecosystem. Yet not all is doom and gloom.

Many of the digital and operational transformations ushered in over the last couple of years will be more permanent. Covid created an unprecedented push toward SaaS with companies across the spectrum moving critical business ops to the internet. Companies today are unrecognizable from their 2019 predecessors — distributed teams, digital transformation, and remote collaboration have all become central in our increasingly online-first global economy.

Indian SaaS

Amid all the Covid-fuelled digital action, the Indian SaaS ecosystem found itself in the perfect storm. Competitive advantages including deep domain expertise, strong customer resonance, and unmatched cost-effectiveness were amplified. Physical proximity, the achilles heel for remote sales became a non-issue for global businesses, and the flood gates opened.

Back in April 2020, I wrote a detailed?article?predicting this trend, and I’m glad to see the last two years fulfill many parts of this prophecy -

If there is any upside to this destructive pandemic it could be that global businesses from will now look to future-proof themselves and embrace digitization…We believe this is a huge global opportunity for entrepreneurs in India and could give the rise to a generation of Indian companies like Zoom. Built in India, for the world.

Since Q1 ‘20, Enterprise SaaS built in India for the world has seen over $10B invested across all funding stages with the Indian SaaS poster child FreshWorks hitting the NASDAQ in Sep ‘21

Fundamental drivers for investment activity have centered around three large business trends (a) Future of work (b) Enterprise modernization and (c) B2B ‘Consumerization’ which I wrote about in my previous?post?—

New models mean a new approach to measuring market resonance — B2B users now expect high-end customer experiences similar to their B2C experiences which have meant a stronger emphasis on design, user flows, and product stickiness. Tracking engagement, retention, and product funnel metrics is now par for the course

Building on these trends, promising Indian SaaS entrepreneurial activity has evolved to build growth vectors focused on (i) competitive pricing (ii) adjacent market expansion, and (iii) world-class sales and churn management. At?WaterBridge Ventures, we’ve been seeing the best founders attack business problems across the following large sub-spaces —

Horizontal software

• Supporting businesses across verticals and universal problem statements
• Collaboration, conversational AI, Productivity, and HR tech emerging slices
• Key here is to land and expand across business units and teams
• Remains the largest subsegment from an investment standpoint, accounting for more than half of all SaaS funding in India
• e.g. Freshworks, Tally, Whatfix, Atlan

Vertical software

• Vertical-specific software that productizes solutions for specific industries
• Productizing business needs and building ‘out of the box’ functionality key here to enable quick return on investment
• Spreading wide is key to growth in this space
• Top verticals ripe for disruption include Healthcare, Retail, CPG & Banking where standardization is common and mandated
• e.g. Zenoti, Fareye, JusPay

Infrastructure & DevOps

• Applications to manage the ever-expanding tech stack and encourage productivity
• Strong community feeling, product excellence, and customer-centric motions key
• Infrastructure, Middleware, Cybersecurity, Dev Ops/tools
• e.g. Postman, Hasura, Druva, Browserstack

And we believe there is much more to come over the next few decades. As we move into an interesting economic phase, the focus on deliberate capital will only sharpen. The days of unabashed growth at all costs are truly behind us and founders will now look to sustainably build strategic moats that are not based purely on cash burn.

SaaS and B2B businesses in general tend to have strong monetization levers and inherent defensibility if executed right. In fact, per Bain & Company - select leading Indian SaaS companies are even outperforming US peers in terms of capital efficiency.

Looking Ahead

At?WaterBridge Ventures, we believe SaaS is (still) hot and Global SaaS from India will be an enduring theme for the next decade and more. We’re looking for entrepreneurs who can think creatively about?GTM models and build the next big export from India.

Do write [email protected]?or?reach out on?LinkedIn, or?Twitter?if you are building in the space or would like to brainstorm!