SaaS companies offer software solutions over the internet, charging clients based on usage of the software. Indian startups saw a new window of opportunity in SaaS as this business model allows for building products in India and selling them over the cloud to a global market.
“India has a cost and talent advantage over other players operating in the market,” said Ben Mathias, Managing Director of Vertex Venture Management, the venture capital arm of the Singapore government-backed investment company Temasek. Mathias, who has invested in Chennai-based customer analytics startup CloudCherry, said higher repeat revenues and better unit economics make SaaS an attractive space for entrepreneurs and investors now than ever before.
The success of Salesforce.com, a cloud-hosted customer relationship management provider, invoked global interest in the SaaS space. What followed was a series of world-class software products being hosted on cloud and used by enterprises globally.
Indian startups, including Capillary Technology, Freshdesk and Rategain, were among the early ones to attract investor attention, putting the domestic SaaS industry on the global map.
As the startup ecosystem in India matures and a funding winter sets in at consumer startups, industry experts predict the focus to shift on startup outcomes rather than density.
“To build winning startups we don’t need a big startup base. Quality startups matter more,” says Sharad Sharma, Co-Founder of software product think tank, iSPIRT.
In 2014, Microsoft Accelerator in India released its ecosystem report in the form of a periodic table, replacing atomic numbers with scores. More well-funded startups were placed higher, indicating funding to be an important metric to measure the future growth trajectory of a firm.
Their latest and revised report published in November this year portrays a more matured ecosystem that measures a startup’s growth by its ‘enterprise readiness,’ indicating a firm’s ability to capture the global enterprise market.
Until a few years ago, key stakeholders in the startup ecosystem believed that if an idea worked well in China, it would work well in India, said Girish Mathrubootham, Chief Executive of CRM solution provider Freshdesk, a SaaS startup from Chennai valued at over $700 million.
“Unlike consumer-facing businesses, where you need to provide discounts to change user behaviour for usage and traffic before you even start focusing on unit economics, a SaaS business promises less risk and higher returns from the beginning,” said Mathrubootham, who has also invested in other SaaS startups, including marketing-automation provider Betaout, web optimisation solution Zarget and CloudCherry.
The upfront investment for a SaaS business is much less for a consumer-facing business that requires more feet on street, said Arvind Parthiban, CEO of Sequoia-backed Zarget. About 70-80% revenue in SaaS is generated from repeat customers paying annual fees, year after year, he said.
What has also worked for newage SaaS companies is creating new software markets riding on the centrally-hosted cloud advantage.
“A lot of Freshdesk’s enterprise customers are first-time users of a help ticketing system. Indian SaaS players are democratising business applications in Western markets. In this process, they are creating many new segments,” said Sharma of iSPIRT.
Source: Times of India
Image Courtesy: The Hindu Business Line