Investments in Indian SaaS (software-as-a-service) startups are estimated to touch $4.5 billion in the current year—recording a steep 170% increase over 2020. The growth is largely being led by a rise in the number of deals in the over $50 million bracket. Interestingly though, investments have not been typically restricted to later-stage SaaS companies alone, but have been considerably spread across firms of all sizes, underlining the robust investor appetite for home-grown SaaS firms. The total expected $4.5 billion funding represents about 7%-8% of overall private equity, and venture capital deal value in the country, analysts at Bain & Company have said in a report. “This heightened interest across investment stages is explained by Indian SaaS companies that are maturing and have proven scalability,” the analysts say.

The pool of investors backing SaaS startups has matured and grown to be more diverse. India today has a good mix of SaaS-focused funds, and new investor categories such as corporate venture capital (VC) and sovereign wealth funds. With strong investor support, local SaaS companies could well reach $30 billion in revenues by 2025, capturing an 8%-9% share of the global SaaS market, analysts at the consulting firm have said. “As the Indian SaaS landscape matures, founders have begun to expect greater involvement from investors. Investors are increasingly seeking to add value beyond simply providing capital and connections by providing operational support on go-to-market, product growth, expansion and recruitment,” the analysts note.

More than 35 Indian SaaS companies—which is a seven-fold increase over five years—had an annual recurring revenue (ARR) of over $20 million in 2021.

About seven to nine of these firms reached the $100 million ARR milestone, compared to just about one or two companies that managed to achieve this feat five years ago.

Within the SaaS space, the horizontal business software segment that covers events tech, enterprise collaboration, conversational artificial intelligence (AI) and Human Resources (HR) tech continues to drive the bulk of the investments, accounting for more than half of all SaaS funding in India. The country’s count of SaaS unicorns stands at 13.

While growth continues unabated for SaaS firms amid a rising digital push by businesses, companies will need to deftly tackle the projected talent demand-supply gap. SaaS-specific talent demand is expected to grow two to three times in the next five years. Increasing the base of employable graduates through changes in university curriculum and reskilling the existing talent pool can be some of the ways to bridge the gap, analysts suggest. Indian SaaS companies currently employ more than 62,000 people in India.

The number of Indian SaaS exits increased by 100% from six in 2018 to 12 in 2021 with Freshworks’ initial public offering (IPO) initiating a new wave of exits.

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