Key Factors Catapulting India to Become the Next Global SaaS Capital
In the world of tech, Software as a Service (SaaS) has undoubtedly taken over as the fastest-growing business model.
SaaS has charged ahead to grow over 300% in the years from 2012 to 2018, nearly 5x faster than the revenues of S&P 500 companies. This explosive growth can be attributed to supply and demand-related factors. More importantly, SaaS has been particularly favoured owing to the significant rise of the subscription-based economy.
Today, the likes of Salesforce, Zoom, Adobe, Shopify, and Snowflake have come to the forefront as some of the biggest SaaS companies to lead digital disruption globally.
According to Statista, the SaaS market is projected to go from USD 197 billion to a staggering USD 232 billion by 2024.
The U.S. currently holds the fort as the leading global market in SaaS with much of the revenue in 2023 expected from this region. While the U.S. has been teeming with SaaS companies, the EY-CII report states that India is emerging as a strong contender to take over as the next global SaaS capital. Furthermore, the exponential rise of SaaS unicorns in the country and Freshworks's Nasdaq IPO are some of the key factors that add to the global credibility of India’s SaaS growth story. There’s a lot to unpack in the Indian SaaS ecosystem. Let’s start by taking a closer look at the current SaaS market in the country.
India, en route to becoming the next global Saas capital
While many industries in India grappled with layoffs and economic downturns, the SaaS ecosystem with actively funded start-ups went on a hiring spree. Reports confirm that 96% of SaaS unicorns and potential unicorns in India witnessed a significant increase in their workforce by ramping up their hiring efforts.
With their growth momentum only gaining more steam, 280 SaaS companies registered impressive revenues in 2022 in the range of USD 1 to 10 million, marking a new record.
Add to that, 93% of SaaS founders are positive that their revenues will increase further in the next 12 months. SaaS offerings in India are moving up-market with more enterprises adding subscription-based offerings to their core product lines. As a result, the SaaS industry in India is expected to skyrocket to fourfold its present magnitude—touching $50 billion in Annual Recurring Revenue (ARR) by 2030.
Behind only the U.S. SaaS market in terms of maturity and scale, the roads are clear for the Indian SaaS ecosystem to take on the mantle of the next global SaaS capital.
VC funding for Indian SaaS soars in 2022
The SaaS ecosystem in India has been resilient to economic disruptions. With the proliferation of globally oriented SaaS companies, India is now the second-largest SaaS ecosystem in the world, with investments mounting up from Venture Capitalists (VCs) in the last five years.
Despite the harsh terms of the funding winter, investors deployed nearly $6 billing into SaaS companies in India—up by 3.5x from 2020 and an astounding 8x increase from the funding figures in 2018. The deal volume across both seed and early-stage SaaS start-up were on an upward trajectory last year. While the funding value of seed-stage SaaS companies rose by 1.5x, early-stage funding was better placed with a 1.6x increase.
Having said that, amid interest rate hikes and recession fears—investors grew more cautious about backing software businesses. Consequently, there was a 32% decline witnessed across late-stage SaaS funding value in 2022.
What has led to this phenomenal growth?
Unlike many other industries, SaaS models are deployed almost instantly and not distributed physically. This makes SaaS offerings the go-to option, especially given how businesses have technologically evolved in recent years. Moreover, end-users are more open to using SaaS tech stacks for remote work, real-time collaboration, data sharing, and more.
There are two key factors that outshine multiple other reasons behind the monumental growth of the SaaS landscape in India.
1. High capital efficiency: Saas businesses in India can launch and scale with less capital. Globally, capital markets are placing a high premium on efficiently run businesses, and given how software companies in India have higher efficiency metrics when compared to their counterparts from around the world—India’s SaaS market is poised to win in this regard.
2. Hyper-growth companies: 1 in 3 SaaS companies in the country are trailblazers. These SaaS businesses tend to build additional products faster and earlier in their lifecycle, scaling their operations at unprecedented rates.
The Indian SaaS landscape: Unleashing a trillion-dollar potential
The journey from on-premise to SaaS-enabled solutions hosted in the cloud has been an incredible one. Experts believe that the next phase of growth for Indian SaaS will be seen primarily in the fields of cybersecurity and DevOps, along with vertical SaaS models. Furthermore, with Unified Payments Interface (UPI) empowering India to set gold standards in digital payments—we are also likely to witness the steady rise of FinTech SaaS, a lucrative sector in the FinTech space.
With all this in the backdrop and having successfully built a conducive environment for start-ups, India is uniquely positioned for worldwide domination and will steadily climb up the ranks to become the next global SaaS capital.
Think Working Capital… Think CredAble!