The Covid-19 pandemic has been unable to dampen the interest of investors in Indian startups which offer software as a service (SaaS). According to a new report by Bain & Company, investments in SaaS rose to $1.3 billion in 2019, a 60% increase over the previous year. And in the first six months of 2020, venture capital (VC) and growth equity investments have grown 25% to $830 million over the corresponding period last year. And this made up 19% of the total such investments this year (it was 16% for H12019), says the India SaaS Report 2020.

SaaS companies founded by Indian entrepreneurs are poised to reach between $18 billion and $20 billion in revenue, with the potential to capture a 7%-9% share of the global SaaS market by 2022, the report says. The global SaaS market is estimated to grow to $230 billion in 2022 from $145 billion in 2019.

“The Indian SaaS landscape is on the cusp of a transformation. Over the last five years, the number of funded SaaS companies has more than doubled and the number of SaaS companies drawing Series C or later stage capital has quadrupled, representing significant traction,” says the report, which defines Indian SaaS firms as those set up by Indian or Indian-origin founders, and with the majority of the workforce in India.

The report says that companies such as Zoho, Druva, Icertis, and Freshworks which breached the $100-million annual recurring revenue (ARR) mark, adding that there is a healthy pipeline of companies “well-placed to follow over the next 12 to 18 months”.

The report highlights the distinct advantages Indian SaaS firms have over their global peers: significantly lower personnel costs (85% and 74% lower salary for entry level developer and sales resource respectively vs. the U.S.); access to a wide pool of skilled talent (India has over 100,000 SaaS developers and 120,000 inside sales talent); around-the-clock customer service (with the second-largest English-speaking population); and wide acceptance of world-class products built and managed by Indian founders.

The report also highlights that first-generation founders such as Sridhar Vembu of Zoho and Girish Mathrubootham of Freshworks played a pivotal role in India’s SaaS journey by actively engaging to build a community of budding entrepreneurs, which led to the development of many new ventures and immense job creation. For example, more than 40 companies (including Freshworks) were founded by ex-employees of Zoho.

“We now have a thriving ecosystem of enablers comprising both domestic and global SaaS investors, over a 100 SaaS angels with four or more investments, incubators and accelerators, and SaaS development events and initiatives sponsored by communities such as SaaSBOOMi. The impact of these enablers can be witnessed in SaaS companies’ faster trajectory to scale in recent years, with over 50 companies having breached the $10 million ARR milestone and many more are expected to follow,” said Arpan Sheth, partner and leader of Bain & Company’s Asia-Pacific Technology, Vector and Advanced Analytics practice and one of the authors of the report.

Going forward, Bain expects four key archetypes of companies to emerge: SMB (small and medium businesses)-focussed SaaS companies such as Zoho and Freshworks targeting global shores; vertical-specific companies such as Locus and Innovaccer, which have the potential to upend underserved vertical; globally competitive companies in emerging tech such as Postman and BrowserStack; and firms which business-to-business tech products for the domestic market, like MyGate and Yellow Messenger.

The report also highlights four critical abilities that Indian SaaS firms must have to thrive in a post-Covid-19 world: embracing remote sales; setting up an effective enterprise sales engine to focus on moving upmarket and expanding to large global markets at an early stage; creating a strong product-market fit to solve a specific use case; and fostering employee success and innovation within the organisation.

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