April 20, 2022
SaaS investments increased from US$ 25 million in 2020 to US$ 56 million in 2021.
Five startups became unicorns in Q1 of 2022 with 12 more expected to join them.
40% of the funding received by the sector was through late-stage deals.
Web3 functionalities including security, data analytics and NFTs are of interest to investors.
A Zinnov report titled ‘India SaaS: Punching through the global pecking order’ maintains that India’s Software-as-a-Service (SaaS) startups are expected to grow to an overall revenue of $116 billion by 2026, registering a Compounded Annual Growth Rate (CAGR) of 55-70%. Jointly authored by Venture Capital firm Chiratae Ventures, the report also reveals that the volume of investments made in the space grew from US$ 25 million in 2020 to US$ 56 million in 2021.
The Indian SaaS ecosystem currently has more than 1,150 startups of which 17 are unicorns, out of which 5 startups joined the coveted unicorn club in the first quarter of 2022. About 12 more SaaS startups including Amagi Media Labs, Fractal, Hasura, Uniphore and DarwinBox are expected to become unicorns or companies with a valuation of US$1 billion over the course of the year.
Late-stage deals constituted close to 40% of the total funding received by the sector in 2021. The development is indicative of funding picking up pace post the 2012-2018 dry spell and the subsequent recovery period until 2020. Experts observe that the volumes of late-stage funding and early-stage funding are equal in the recent past. India is expected to become the second-largest ecosystem for SaaS by 2026, with the sectoral revenue expected to cross US$ 100 billion.
Employment in the SaaS sector is expected to double to 2.8 million in 2022 owing to the increase in revenues. The expanding scope of the sector would also require widespread upskilling and the reorienting of hiring practices towards attracting and retaining the right talent.
In the post-pandemic scenario, customer acquisition appears to be a point of concern. The report indicates that the cost of acquiring customers has increased and a shift in customer requirements relating to geographical proximity could affect growth prospects.
The intersectionality between SaaS and Web3 has fuelled interest among the investor community. The sector has accommodated Web3 functionalities into its operations although at a very nascent stage. Some of the Web3 functionalities with immense scope for upscaling were identified in the domains of security, data analytics, decentralized automation, metaverse and Non Fungible Tokens (NFTs).
Investors have exhibited an interest in solutions including Verticalized solutions, Hyper Intelligent Automation, Cloud-Native Enablers and Cloud Security among others.