Why Indian SaaS firms are on a roll

"Freshworks is the company that wasn’t supposed to win. Whether we could differentiate ourselves in crowded markets, or compete with larger players, or build a global SaaS company from India, the doubts were always there…I’ve heard it all, including: ... Don’t enter the CRM market. You just can’t win...You really can’t build a global SaaS company from India," recalls Gireesh Mathrubootham, founder and chief executive officer, Freshworks, in his filing with the US Securities and Exchange Commission. 

He stands vindicated today; his persistence has paid off. Mathrubootham's 6.6% stake is worth over $765 million at the listing price of $46 apiece, not accounting for his 10.35 million restricted stock units, which if vested and converted today, would give him an additional $476 million.

His company, too, is valued at a little over $13 billion.  

First-generation founders including Sridhar Vembu and Girish Mathrubootham, have played a pivotal role in India’s SaaS journey.

Vembu is the CEO and co-founder of Texas-and Chennai-headquartered Zoho Corp., which has emerged as one of the major privately-held SaaS companies. 

"Freshworks has in my view rolled the snowball and its effect will last on the decades ahead,” says Vishesh Rajaram, founder and managing partner of Speciale Invest.

The organisation has created both tangible and intangible wealth for the SaaS ecosystem, which will lead to more founders “stepping up to build global institutions and we are seeing strong signs of this already". 

Sanchit Vir Gogia, chief analyst, founder and CEO of Greyhound Research, has a similar take. "It's purely a pay- as-you-go model which reduces your cost structures significantly, which, in a services business, wouldn't go down simply because there's an entire scoping exercise that needs to be done -- the solution needs to be stitched, and customisation is going to happen.”

In SaaS, he noted, “there are typically no customisations until it's a very large organisation”. 

The success of Freshworks and Zoho has rubbed off on other SaaS companies too. India already has nine Indian or Indian-heritage SaaS unicorns including Zoho, Freshworks, Postman, BrowserStack, Icertis, Druva, Zenot, Mindticle, HighRadius. 

Consultancy firm Bain and Co., noted in a December 2020 report that Indian SaaS companies are well poised to reach $18-20 billion in revenue and capture 7-9% share of the global SaaS market by 2022.

It added that companies including Freshworks, Zoho (completely bootstrapped), Druva and Icertis crossed the $100 million annual recurring revenue (ARR) mark in 2020 itself. 

SaaS applications are cloud-based and typically accessible through desktops and mobile applications, as well as with a web interface.

The global SaaS market is estimated at about $145.5 billion, according to the market research firm Statista. 

India could be on the cusp of unlocking a $1 trillion opportunity for SaaS companies, creating nearly half a million new jobs by 2030, according to a 7 July report titled 'Shaping India’s SaaS Landscape' by SaaSBOOMi--a pan-Asian community of SaaS founders and product builders.  

The report added that SaaS accounted for $600 billion of the global IT enterprise spend in 2020, and Indian SaaS companies now generate $2-3 billion in revenues each year and have earned about 1% of the global market.

"If they reach their full potential, it can generate annual revenues of $50-$70 billion by 2030 and win 4-6% of the global market – a value-creation opportunity of $500 billion to $1 trillion," the report notes. 

Bain pointed out in its report that the first group of Indian SaaS companies to emerge consisted of horizontal players such as Zoho and Freshworks, "which used India’s cost and talent advantage to target global small and medium-sized businesses (SMBs)".

Freshworks, for instance, was co-founded in 2010 in Chennai and later moved its headquarters to San Mateo in the US, but continues to have a large workforce based in India, and has close to 4300 employees spread across geographies.

Zoho, too, has over 10,000 global employees, with a significant number in India including hundreds working from smaller Indian cities. 

But as Gogia points out, "SaaS typically has a trajectory. So it's nothing to do with Freshworks alone. Alone, SaaS has done well, and typically has the kind of valuation that it does. If you see Salesforce , Slack,  Google workspace, it's all SaaS."

"Intuitively, success breeds success, it sets playbooks that others can build upon. We are seeing this happen in SAAS," concludes Rajaram.