The software as a service (SaaS) market has had a massive year due to people being pushed to adopt technology catered by the pandemic-led lockdowns. SaaS is expected to be a $500 billion market opportunity by 2025, according to Harshjit Sethi, Managing Director, Sequoia Capital , which was at $200 billion last year.
“There is tremendous opportunity all across. New industries such as financial services, hospitality and even education are seeing adoption of SaaS platforms. So, industry intersection is a very good opportunity,” Harshjit said at YourStory’s flagship event TechSparks 2021.
The opportunity seems to be very huge in the highly underpenetrated small and medium enterprises, which are inherently not technologically savvy.
“Startups such as and are doing very interesting things,” Harshjit said, “They have created a mobile-focused platform, instead of desktop-based, as their customer base majorly uses mobile phones. Their revenue models are slightly different from current subscription ones.”
Saas startups have IPO dreams
In the early 2000s, SaaS players were majorly focused on the IT industry, according to Nexus Venture Partners’ Managing Director Jishnu Bhattacharjee. The veteran investor added 13 years back, his firm took a conscious call to not invest in IT-focused SaaS startups. “We wanted to see if non-IT-related SaaS startups can be scaled,” Jishu added.
The bet paid off for Nexus as many of them have gotten a $1 billion valuation and entered the coveted unicorn club. And now, the goal is to get these companies listed.
“The next 12-18 months will see several IPOs. Public listing is also a very important asset class, which is getting created. But to get there, companies will have to look at many aspects in their business,” Jishnu added.
Jishnu opined that startups need to get their fundamentals in place. The company margins, board members, team, and a stable business model with the right story would set companies up for an IPO.
“The expectations are also higher and the bar is very high. Earlier the revenue expectations would be in millions. Now, it would be up to a billion dollars,” Jishnu added.
Before the funding boom of 2020, SaaS startups would majorly look to capture the US market instead of India or other South Asian countries. This was because of the thinking that the domestic market is not big enough.
But the pandemic changed many things.
“Now even early stage startups work with SaaS platforms, which in turn gives the latter their customer base,” says Harshjit.
Getting customers, during early stages, with capital and talent are the three biggest problems for early-stage SaaS startups. But these things have started to get solved now.
“There is a good talent pool in India. A SaaS player does not need to set up an office in the US now to have the best talent pool. Funding is also solved as we know, and the customer base is also there,” says Pranay Desai, Vice President-Matrix Partners India.
The Indian SaaS startup ecosystem has been growing. In H1 2021, Chennai-based software firms raised $73.8 million across 17 deals, according to YourStory Research. The SaaS capital of India is slowly but steadily rising to be a key SaaS startup hub of the country.
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