Abundant and relevant software talent, low production cost, and universally viable products are consistently attracting more foreign investors giving Indian Software-as-a-Service (SaaS) startups a hope of becoming new generation’s Wipro or Infosys. The number of startups has increased from 3,000 in 2014 to 5,000 2016, and is estimated to cross 11,500 by 2020. Major reasons for this phenomenal growth are huge funding, massive supply of talent, and dynamic entrepreneurial nature.
Companies from around the globe are focused on investing in India and China. According to the information made available by data-tracking organizations like Tracxn and Xeler 8, out of 82 Indian enterprises that have received major investments this year, foreign investors have funded more than one-third of them.
SaaS companies namely Agile CRM, Web Engage, Capillary, Exotel, Charge Bee, PubMatic, Freshdesk, Fusion Charts, Orange Scape, Kayako, Wingify, Knowlarity, Vizury, and Zoho have surpassed the gigantic figure of $1 million USD in ARR this financial year; despite majority of them being bootstrapped.
SaaS works on software distribution models in which third party sources present apps that are made available to customers through the Internet. While most software giants like Infosys have successfully bagged international clients and introduced outsourced software development, Indian entrepreneurs’ SaaS companies are focused on marketing of software-as-a-service in international market using capital funded by global investors. Most SaaS startups are based out of the U.S. and with a small marketing team. In terms of startups gestation, Chennai is currently leading, followed by Delhi NCR and Bangalore.
Their merchandise development team, and their mainstream marketing and sales team are working out of India.
Baishampayan Ghose, the chief technology officer at Helpshift said, “It is easier to find and retain talent in India, leading to a huge cost benefit”. This shows that availability of talented workforce at low cost has been a crucial reason for attraction of foreign investors. Helpshift is a mobile CRM provider headquartered in San Francisco. Backed by multiple Microsoft Ventures and Salesforce Ventures, Helpshift has 75% of its workforce functioning out of their development center in Pune.
Sharad Sharma, co-founder and a major investor of software product industry think tank iSPIRIT, said that United States SaaS market is divided into Chevy, BMW, and Toyota segments.
“Indian SaaS companies are doing well in the Toyota and Chevy segments because there is a competitive advantage in marketing and selling across global markets from India,” Sharad Sharma added.
“A SaaS company doing desk marketing and selling from Chennai gets more traction for the same budget than the one in San Francisco,” he said. He also said that global investments in SaaS startups in India indicate that we have the aptitude to become the hub of SaaS startups in the world. This may lead to upcoming of more Wipro and Infosys in near future.
Data from Xeler 8 and Tracxn indicate that Google Capital, Blume Ventures, Accel Partners, Sequoia Capital and 500 other startups are most active capitalist funders in Indian SaaS market. The Silicon Valley based Storm Ventures has also announced massive $10-million fund specially for Indian SaaS startups.
Anshu Sharma, venture partner at Storm Ventures, told Economic Times that the venture capital firm has invested in two Indian SaaS companies in secretly, and will continue to look for more such companies from field of enterprise resource planning, logistics, and customer relationship management, with a macro focus.
SRI Capital has recently invested in 3 Indian SaaS startups, including Zuppler, a restaurant software solution provider based on Pennsylvania, which operates its Research and Development out of Delhi, and Philadelphia-based Yellow dig with the Pune’s development center.
“Enterprise software companies are starved for capital everywhere due to the focus on consumer startups,” said Sashi Reddi, managing director of Philadelphia-based early stage investment firm SRI Capital. “This is especially true in India and so I see it as a great opportunity for investors,” he added.
However, in spite of growing interest of global investors, majority of Indian SaaS startups are struggling with scaling challenges, experts have said. Selling from India is still a major challenge for most SaaS companies, said Kartik Hosanagar, a capital angel investor and professor at the University of Pennsylvania.
The distribution of SaaS model is gaining traction in India because the use of software, as per the requirements on the internet, is far less costly and monotonous as compared to downloading and maintaining it on the system.
“Enterprise SaaS companies struggle to sell to Indian corporations, making the domestic market virtually non-existent and selling globally from India isn't easy either,” added Hosanagar a major capital angel investor in at least three Indian SaaS companies.
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