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India SaaS Report 2022

The Indian Software-as-a-Service (SaaS) ecosystem continues to gather momentum despite prevailing market headwinds and has become a global leader behind only the US in scale and maturity. Whether measured in total annual recurring revenue (ARR) of $12 billion–$13 billion in 2022, up four times over the past 5 years; or investment (~$5 billion in 2022, up six times), Indian SaaS progress is irrefutable and its future trajectory promising. This momentum is driven by a mutually reinforcing flywheel of SaaS companies and investors, with a proliferation of new SaaS companies with proven growth models, supported by investors who are allocating increased capital to Indian SaaS across stages.

Indian SaaS companies are being founded in record numbers and are proving they have a right to win in the global market. Of the 1,600 Indian SaaS companies that have now been funded over the past five years, around 14 of them exceed $100 million in ARR (vs. around five in 2020) and are reaching this growth milestone as quickly as their US counterparts. Indian SaaS companies win using a variety of approaches, including product leadership, attractive pricing, and service quality—and emerge as globally best-in-class across numerous categories. While software buyer sentiment has softened in the second half of 2022, Indian SaaS companies play in categories that benefit from long-term, secular-demand tailwinds.

Encouraged by this growth, investment in Indian SaaS reached an all-time high of ~$5 billion in 2022, bolstered by a record $1 billion investment in Securonix. However, 2022 has been a game of two halves. While 2021’s funding momentum carried over into a record first quarter, there has been a subsequent 40% year-on-year decline in investment across quarters two through four as global sentiment has softened. Behind this has been a decline in large deals as investor sentiment meets with scaled Indian SaaS companies that previously raised capital, benefit from supportive economics, and choose to stay out of the capital markets for now.

Despite this market slowdown, proven revenue growth combined with attractive margins has made SaaS a comparative bulwark for investors, with Indian SaaS venture capital (VC) investment up 10% over quarters one through three in 2022—while overall VC investments are down ~22% vs 2021. Investors in Indian SaaS benefit from an opportunity to back a wide array of companies across sub-categories and have a clear path to realisation, with ~40 SaaS exits in 2022 (almost doubling year-on-year) across a variety of modes. As a result, more than 70% of investors expect to increase their investment in Indian SaaS going forward.

Growth remains at the top of the agenda for Indian SaaS companies, with new market entry enabled by effective enterprise go-to-market (GTM), a key priority. Selling into scaled SaaS markets such as the US (close to $150 billion in SaaS spending) is a strategic imperative, and today just around 20% of revenues for Indian SaaS companies are generated from India. Going global necessitates effective enterprise GTM playbooks that Indian SaaS companies are increasingly refining. However, Indian SaaS companies are also being confronted with a new economic reality that emphasises efficiency, and cost and liquidity management now need to be part of any management team’s toolkit. Near-term turbulence aside, Indian SaaS remains in its early stages and has proven that it is building world-leading companies across categories. We expect that over the next 5 years, Indian SaaS companies will collectively reach ~$35 billion in ARR and capture ~8% of the global SaaS market. Bain

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