Forbes India 15th Anniversary Special

Why the slowdown is good for India's SaaS companies

It is pushing them to sharpen their focus on cash flows, and perfecting their build-in-India-sell-in-the-US playbook

Harichandan Arakali
Published: Jul 6, 2023 04:52:35 PM IST
Updated: Jul 7, 2023 08:28:52 PM IST

Why the slowdown is good for India's SaaS companiesBig projections about India’s SaaS sector have come down to earth, and overall, SaaS startup funding deals have been significantly fewer this year compared with the same six months last year. Image: Shutterstock

“The fundamentals of SaaS (software as a service) are sound. We are adopting these technologies and we are more productive, more efficient… all of that, but the macroeconomic picture is challenging, and most companies will have revenue pressure and that’s going to transmit to SaaS vendors as well,” Sridhar Vembu, co-founder and CEO of Zoho Corp, told Forbes India a year ago.

At the microeconomic level, even as tech adoption continues, there is competition, and too many companies are chasing the same customers, he’d said. Customers will push for consolidation and look for better options—what if one could get the best of Zoom and Slack in one place, for example. “Will a business customer want to manage 200 subscriptions?”

This all is coming to pass. Big projections about India’s SaaS sector have come down to earth, and overall, SaaS startup funding deals have been significantly fewer this year compared with the same six months last year. And the last time a SaaS unicorn was minted in India was more than a year ago, according to Venture Intelligence’s unicorn tracker.

And yet, from Zoho and Freshworks in Chennai, together accounting for 17,000-plus SaaS professionals, to SpotDraft’s 170 engineers in HSR Layout, Bengaluru’s de facto SaaS destination, there is a sense of optimism.

They are perfecting the playbook of building software in India and selling it to America. And the current slowdown in the global economy will only serve to sharpen their focus.

SpotDraft, for example, scored a $26 million Series A funding recently, led by Premji Invest, IT billionaire Azim Premji’s family office and PE (private equity) firm, to step up its US expansion on the one hand and product development in Bengaluru on the other.

Bala Srinivasa, managing director at Arkam Ventures, an investor in SpotDraft, says India has come a long way as a software market, and there are SaaS companies on the firm’s portfolio of investments that are doing millions of dollars in annual recurring revenue. “Five years ago, you would have said that’s crazy… not gonna happen,” he says.

Also read: How SpotDraft wants to become the Salesforce of contract management

The attraction of the US, the world’s biggest technology market, is it can fetch three to four times more money for these startups, says Srinivasa, whose experience includes several years of enterprise software sales in the US.

Another important trend, Srinivasa adds, is that many people have come back to India from the US, across the spectrum. So today there are full-fledged teams from India available between Chennai and Bengaluru, and Hyderabad and Pune and Noida, to go after the US market.  

There are product marketing teams, product managers, pre-sales and business development representatives available. “You can build a go-to-market (plan) that is way more efficient from a cost perspective than what you would be able to do in the US,” he says.

SpotDraft gets about two-thirds of its business from the US. Its customers include companies like Notion and Airbnb. “And all of them have come inbound,” Srinivasa says.

The next step is, and this is why some of these companies are raising money or looking to raise money, to build on-the-ground sales teams in the US. And “they have an opportunity to start with existing references of very well-known companies”, Srinivasa points out. “So, you combine a large market opportunity with a winning product, being able to run it from India, and suddenly you're just running a much more efficient business model than an onshore competitor in the US.”  

One could say the IT services model all over again, except with software products, and some important differences.

With the larger companies, like Zoho and Freshworks, it’s more about building on what they’ve already achieved, serving the smaller-sized business in the US and moving more “upmarket”.

Zoho said recently that the mid and upmarket segment—comprising customers with employee count ranging from 250 onwards to a 1,000 and all the way beyond that—now accounts for a third of its entire business worldwide, serving 95 million users at 600,000 businesses.

Some first-generation Indian SaaS companies that focussed on India and nearby markets such as Southeast Asia are now making a concerted effort to expand their operations in the US, including via acquisitions.

Capillary Technologies is a strong example of that. Having made an early acquisition in the US a few years ago to raise its profile in the market and win referenceable customers, the Bengaluru company has recently announced two new acquisitions in quick succession.

Also read: SaaS in 2023: 6 business tech trends that will drive the industry


The previous acquisition has grown to contribute almost four times more revenue from the US market, so that doesn’t hurt either. Capillary was headed for an Indian IPO, but founder Aneesh Reddy deferred it in the face of the economic slowdown.

The focus is on the US expansion now. And “it’s a great time to buy now, if you have the money”, he points out. Capillary is also an example of how some Indian SaaS vendors have learnt to be resilient. The company focuses on customer loyalty management for large retail customers and when Covid hit, it was a very close call.

They jettisoned some products, cut their workforce by about a third—and helped many of them find other jobs—and focussed on their core platform. It worked, and in June, they announced $45 million in fresh funding, which will help with the push into the US that already accounts for over a third of their business.

The Indian SaaS sector—SaaS companies in India and those founded by Indian founders—is projected to hit $26 billion sales by 2026, growing from about $10 billion today, Zinnov, a consultancy in Bengaluru, estimates.

Also read: Tailor-made SaaS will emerge from India for the world: Blume Ventures' Anirvan Chowdhury


Zinnov and the venture capital firm Chiratae published their annual India SaaS report last month. They write in the report: “The overall outlook is optimistic as 93 percent of founders project their revenues to increase, and 55 percent of investors anticipate an increase in their deal activity in the next 12 months.”

Nitin Jayakrishnan, a second-time entrepreneur and co-founder and CEO of Pando Corp, a rising star in the area of SaaS for supply chain management, puts it succinctly: “There is a new breed of software product companies (from India) that are building directly for the enterprise customer from day one.”

Jayakrishnan and his co-founder and CTO Abhijeet Manohar recently raised $30 million in Series B funding from investors, including Nexus Venture Partners, Chiratae, Iron Pillar and Uncorrelated Ventures, with the latter two leading the new round.

Among the Chennai venture’s customers are some of the world’s biggest companies – Johnson & Johnson, Procter & Gamble, Nestle, BP Castrol, and Honda.

And the downturn has prompted Indian SaaS startups to prioritise cash flow, Jayakrishnan says. The focus has shifted to “the pursuit of profits for venture-backed SaaS companies”, he says.