Indian SaaS startups emerge from shadows of consumer tech peers

Khadim Batti, co-founder of Indian software-as-a-service (SaaS) startup Whatfix, has endured it all, from imperious customers to dismissive venture capital firms.

Batti fought back a chuckle as he recounted a potential corporate customer in 2015 asking for a stake in Whatfix in return for using the firm’s services.

“The company wanted them free, and some equity on top of that,” Batti said with a broad grin. “They said an association with a large enterprise would boost our brand.”

Around the same time, a venture capital executive outright dismissed the web application-focused solutions that Whatfix offered, which help enterprises teach people how to use their apps. The executive predicted that the company would soon become “extinct” without a mobile-first strategy.

That prediction turned out to be dead wrong. Now Microsoft, Cisco, American health care services company Cardinal Health and Dutch chemical giant Akzo Nobel are among the 500 companies globally that use Whatfix’s services, offered on a pay-per-use basis.

“In 2015, a lot of Indian consumer startups were trying a mobile-first approach, and it became a buzzword,” Batti said. “But we were creating a product for enterprises. The investor was looking at consumer traffic trends in India and trying to predict a behavior for enterprises globally, while there was no relation between the two.”

Such inanities were routine in India around 2015, when a battery of homegrown software makers such as Whatfix would fight for a sliver of investor attention while Indian venture capital firms made a rush for the flavors of the season such as e-commerce startups, ride-hailing firms and food delivery services.

Cut to 2021. Whatfix has raised approximately $140 million from marquee investors, including SoftBank, Eight Road Ventures and Sequoia Capital, with about $120 million coming in the past two years, having a number of major companies as clients.

The evolution of Whatfix indicates that Indian SaaS startups are coming of age after living in the shadow of consumer internet startups for more than a decade.

Indian SaaS companies raised $4.5 billion in 2021, as against $1.7 billion in 2020, said Bain & Co. in a report released in December. They got only $800 million in 2018.

According to Bain, India is home to about 9,000 SaaS companies, of which about 1,300 have raised funds from venture capital firms. At least 13 Indian SaaS startups are valued at more than $1 billion, while six of them — testing solution provider BrowserStack, talent solutions company Eightfold, enterprise messaging platform Gupshup, subscription management platform Chargebee, health data analytics platform Innovaccer and sales enablement service provider Mindtickle — turned unicorn in 2021.

Among the domestic backers of Indian SaaS firms are Nexus Venture Partners and the Indian affiliates of Sequoia Capital and Accel Partners. Consumer internet champions SoftBank and Tiger Global Management, former Kleiner Perkins partner Mary Meeker’s Bond Capital, Facebook founder Eduardo Saverin’s B Capital, Insight Partners, TPG, Dragoneer and Mubadala Capital are some of the global funds buying into Indian SaaS startups.

Indian SaaS firms could corner about 8% to 9% of the global market by 2025, churning out as much as $30 billion in annual revenues, the report added, rising from the $7 billion to $8 billion they generated in 2020, which accounted for 4% to 5% of the market.

“It was never a capability issue,” said Prasanna Krishnamoorthy, partner at Upekkha, a SaaS accelerator. “How many people in India could get that kind of money to build software five years ago? Even people who had a global-first approach, instead of building products for India, didn’t have the capital.”

Krishnamoorthy pointed out that the abundance of capital in the past couple of years, coupled with global recognition for the Indian SaaS brigade — led by the bootstrapped company Zoho and Freshworks, which trades on Nasdaq — have encouraged employees at India-based technology centers of global multinationals to build software for a global clientele, particularly in the U.S.

Data company Statista estimates the U.S. accounts for $292 billion of the overall $578 billion in global software revenues in 2021, with India contributing about $6 billion.

Analysts concur that at the homegrown SaaS firms, where India-based teams sell remotely to global customers, cost of operations, particularly wage bills, are lower compared to their U.S.-based peers, which helps them wade through capital constraints.

This is similar to the playbook of information technology behemoths such as Tata Consultancy Services, Infosys, Wipro and HCL, which operate back offices in low-cost locales including India, the Philippines and Mexico. They rake in billions of dollars annually by offering their global clientele services from infrastructure maintenance to digitalization services.

“Since SaaS is cloud-based, you don’t have to be present locally to sell,” said Sanchit Vir Gogia, founder and CEO at Greyhound Research. “There is a significant amount of cost advantage these companies have by coding here and shipping for the world. It’s not just for product development, but also for support, maintenance and implementation.”

Their recent prominence has also spurred partnerships with the IT majors, which are transitioning from their bread-and-butter infrastructure and software support to digital services such as cloud, analytics, internet-connected devices and cybersecurity, among others.

In June, Freshworks announced a partnership with Tata Consultancy Services to jointly develop tools for sales, marketing, customer support and engagement. In October, HCL announced a collaboration with Innovacer to enable digital transformation for life-sciences and health care companies.

“The bigger companies want to improve their digital revenues and to make that happen, they have to invest and grow their cloud-related business,” said Naveen Mishra, senior director, an analyst at Gartner. “We will see scenarios of acquisitions or partnerships between SaaS firms and large companies who are focused on strengthening their overall digital revenues, where cloud becomes the foundation.”

Despite the headwinds, Indian SaaS is still a fraction of the market in the United States. Salesforce commands a market capitalization of $249 billion. ServiceNow’s market capitalization is $121 billion and Snowflake’s $98 billion. Workday commands $69 billion. In comparison, Freshworks at $7.3 billion is the most valued Indian SaaS startup, followed by Postman, which is valued at $5.6 billion.

Batti of Whatfix takes inspiration from the IT services companies that have made a killing in the U.S.

“Imagine a salesperson of an IT service company going to the U.S. 25 years ago and saying, ‘We have a team in India, give us work and we will have it done,'” Batti said. “It is much harder than we saying that, ‘Try our product, if it doesn’t work, don’t buy.’ If they have done it, so can we.”

This article was first published in Nikkei Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.