SaaS startups expect India business to grow faster on digital demand

Bengaluru: Indian software-as-a-service (SaaS) companies expect the country to grow faster this year led by the acceleration in demand for digital and cloud.

The availability of talent, cost advantage and a strong small and medium business (SMB) market make the domestic market a strategic location for SaaS unicorns such as Zoho, Freshworks and Druva, that witnessed stronger adoption during the pandemic and in its aftermath.

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For Sridhar Vembu-led Zoho, although the US is the largest market accounting for 42% of the revenues, India is one of the fastest growing markets driven by the rising demand for cloud adoption by the SMBs.

“While Zoho has been serving businesses of all sizes including several large customers, SMB remains a key market for us. We cannot reveal the number of SMB customers, but we serve over 450,000 customers globally,” said Praval Singh, vice president, Zoho.

As part of its expansion plans, Zoho is opening offices in rural and non-urban centres. “We will continue with our rural revival initiatives around the world,” Singh said.

“In India, the focus now is on innovation and IP (intellectual property) creation towards building scalable business models such as SaaS. The additional advantage India has is pricing. Given that human and other resources can be sourced in India at much economical rates, Indian startups are better positioned to offer high quality SaaS products at substantially lower prices compared to global peers,” said Venkat Vallabhaneni, managing partner, Inflexor Ventures.

According to ‘India SaaS report 2020’ by Bain & Co, Indian SaaS companies are poised to reach $18-20 billion in revenue and capture 7-9% share of the global SaaS market by 2022 as they build new capabilities to drive the next wave of growth.

Freshworks which began as a cloud-based customer service software company has been predominantly focussed on the SMBs which represent 50% of its business, although they gradually expanded their scope.

For Freshworks, India is a very important market driven by the recent drive towards digitalization. “India is one of the fastest growing markets for Freshworks and we don’t see any signs of slowing down. If 2020 has shown us something, it is that Indian businesses can adapt to digital processes quickly and more efficiently,” said Sidharth Malik, chairman of Freshworks India.

“It has an abundance of talent, be it in product development, engineering, marketing or sales. India is equipped to be a product nation. The SaaS model further aids this cause since you can continue doing business from wherever you are,” said Malik.

Druva, SaaS-based data protection and management startup, is witnessing an increased demand for a cloud-first approach to data protection as ransomware threats and questions about data governance have significantly accelerated with remote working.

In September 2020, Druva reported that its data centre workload revenue for Asia Pacific and Japan grew more than 100% in the last 12 months. “We have helped over 135 leading enterprises including Adani Wilmar (India), NTT Data (Japan), McConnell Dowell (Australia), Gold Peak (Hong Kong) and UNIADEX Ltd. (Japan) to successfully navigate their digital transformation initiatives,” said Milind Borate, cofounder and chief development officer, Druva.

Druva which has about 700 employees globally, plans to ramp up its workforce in India within the next one year. “We are committed to expanding our local presence and are on track to add 15-20% new headcount in Pune over the next few months,” said Borate.

SaaS companies have gained significant funding traction in the past two years and will continue to gain investor focus. Investments in these companies have grown by 20% from $670 million in the first half of 2019 to $830 million in the first half of 2020 according to the Bain & co report.

“This is just the tip of the iceberg. Considering the wariness of VCs to invest during 2020, there is excess dry powder available with funds to deploy this year. And we expect a significant chunk of this to go towards funding early-stage as well as growth/late-stage SaaS ventures,” said Vallabhaneni.