A decade into its journey, and after raising over $100 million in an extended Series A round, Singapore-based cloud-based software provider Deskera, is gearing up for a significant pivot.
“We are launching the business super app to do all business accounting on your phone – from P&L, GST, balance sheet, inventory, payroll, attendance to claims – and it will be first app that will be free. Our thesis is that SMEs in this region and India have a fundamental problem when it comes to their business needs and SaaS companies have not been able to solve that. Globally, this will be the first super app for all business needs, and that is the next stage for Deskera,” its chief executive Shashank Dixit told DealStreetAsia in an interaction.
“Until yesterday, we were a local version of what Oracle or SAP was doing in the US, and offering that at a cheaper cost – but a business super app means the company completely changes the way we’ve operated so far. Our business model changes now,” he added.
The logic: “There are over 150 million SMEs in India and SEA, and less than 5 million of them use any software,” he explained.
Unlike other SaaS (software as a service) majors in this region, Dixit said Deskera had no plans to chase the US market, and said its investors were aligned to the company’s strategy to “build local solutions for this region.”
In May 2019, we had reported that Deskera had raised over $100 million from an entity linked to South Korea’s Naver. This was an extension of the $60 million round it had raised in November last year from investors including Jungle Ventures, Cisco Investments, Tembusu Partners, Susquehanna International Group and Innoven Capital.
Asked on the runway post the latest fundraise, Dixit said the SaaS provider “will obviously raise more capital as it pushes for SMEs to adopt software for their business needs.”
He also added that Deskera was not profitable, but cash flow neutral. “We are close to hitting $100 million in ARR (annual recurring revenue). But with the business super app that we are launching, as it will be largely free, it can impact our business, and we will have to see how we can monetize it.”
Edited excerpts of an interview:
At Deskera, you’ve done a series of partnerships recently. What’s next in your growth phase?
We are shifting heavily to a mobile app, and let me explain that through numbers. India saw about 5 million desktop sales in 2018, and the country has close to a billion mobile phone apps. We are looking at business apps as an ecosystem – it is different from a platform approach. There is not a single business app in the market that lets you do GST. Even in Singapore, an SME needs a computer and some software to file GST. We are launching the business super app to do all business accounting on your phone – from P&L, GST, balance sheet, inventory, payroll, attendance, to claims – and it will be first app that will be free. We will have an advanced paid version of this app. Our thesis is that SMEs in this region and India have a fundamental problem when it comes to their business needs and SaaS companies have not been able to solve that. Globally, this will be the first super app for all business needs, and that is the next stage for Deskera.
Does this strategy shift for Deskera require you to raise more funding? You have raised over $100m million in funding so far – how much runway does this give you?
There are over 150 million SMEs in India and SEA, and less than 5 million of them use any software. Not talking about accounting software or our software here – but just any software. In the startup ecosystem here, there are two approaches – be inspired by ideas from West or China and replicate it here, but the second bucket of solving unique problems for SEA and India is quite empty. That is our opportunity – innovating for the specific problems for the region. We will obviously raise more capital as we push for SMEs to adopt software for their business needs. Until yesterday, we were a local version of what Oracle or SAP was doing in the U.S, and offering that at a cheaper cost – but a business super app means the company completely changes the way we’ve operated so far. Our business model changes now.
Be it SEA or India, once a SaaS startup is reasonably successful, their next approach is to target the U.S market – start selling there and set up teams there. Will that be the Deskera’s strategy too?
We are not targeting the U.S market. Agree all successful SaaS startups in SEA and India run to the U.S, but we see a unique opportunity to target just local SMEs in this region. Our investors are aligned on our strategy to build local solutions of this region. We are talking about a digital economy, and if we don’t have local software providers – be it us or from anybody else – how will we be building this?
But if this is such a huge opportunity, what stops the global SaaS majors from coming in and addressing the needs of SMEs in India and SEA?
We decided to build a super app for business because no one else was doing it. This requires a lot of localization and a lot of focus on these markets. Large global players do not innovate exclusively for a region or a specific country – they make products for their largest clients. They bring their tried and tested methods that have worked in the US, but that will not lead to SMEs adopting software in emerging markets. There is no Asia-specific or India-centric large SaaS player – there are no global players working with each of the governments in SEA or India for GST and other services. For instance, if all SMEs this region were to use some sort of software for GST filing, that alone is a US$ 200 billion market – that is why we are taking the fight to mobile.
Is it a lot easier to build a SaaS company in SEA or India today? Is funding for such startups easier to access when compared to when you started about a decade ago in 2008? Have investors warmed up to the B2B opportunity? Today, we have several VCs focused on this space in India and SEA. India currently to has some SaaS unicorns like Freshworks and Zoho. And can SaaS players from this region become global majors?
Some of these players in India are already big companies – they are not small players any more. Your investors have to be aligned if you are building a SaaS company that is targeting a global play. If your investors want you to be profitable, then you are obliged to chase the US market. We have investors who are locally aligned and focused on this region – so we are not building or solving for a profitable market, but trying to address the local opportunity. If SMEs can solve their software problems, it will then solve a lot of other challenges they face now.
For early-stage SaaS companies, it may be a lot easier to find investors in SEA and India now. But if you take late-stage, the answer is no. My view is that the late-stage investors in this region are not looking at companies that are solving local problems. Many of the late-stage investors want companies here to be solving global problems – they seem to be confused and appear to be searching for the best companies in the world here. When late-stage investors here look at SaaS companies here, they want you to be competing with the biggest names globally, they want you to be in the US… Many of these investors are very smart, but they appear to be out of touch with the reality, out of touch with the fundamentals of the region. They ask you on your profitability and bring in metrices from the US, which may not be the best way to evaluate companies here.
You spoke about profitability. We’ve seen what has happened with WeWork’s IPO. A slew of other listings in the US have done badly too – Uber and Lyft included – as these companies have not been able to show a path to profitability. Where does Deskera stand? You had planned to do an IPO some years ago, but then decided against it. Are not late-stage investors justified about asking for profitability, considering the current environment?
This has to be clarified – the reason I mentioned profitability is that it is not related to being profitable on a P&L basis, but on a unit economics basis. Investors have put in a lot of money into many of these unicorns and they have every right to seek profitability – but there is a nuance to profitability and investors want companies to be profitable on a per unit basis. Companies have to achieve this, whether they do an IPO or not, or whether they go global or remain local. Unlike ride-hailing or e-commerce, SaaS is an inherently profitable business.
The entrepreneurs today are a funny breed – I am not sure if many of them even understand the difference between cash flow profitability vs P&L profitability – you should always be cash flow positive. At Deskera, we are cash flow neutral. We are close to hitting $100 million in ARR (annual recurring revenue). But with the business super app that we are launching, as it will be largely free, it can impact our business, and we will have to see how we can monetize it.