Key Factors Propelling the Indian SaaS Ecosystem

01 Nov 2022

Home to more 90+ unicorns across varied segments, India has not only been witnessing a boom in entrepreneurship but is also rapidly emerging as a hub for SaaS (software-as-a-service) start-ups. Over the next few years, India is poised to become the next global SaaS capital owing to the immense potential of its budding entrepreneurs and the latest, high-quality products that are being developed by them.

With India still at a nascent stage of SaaS adoption, the market offers huge potential for SaaS start-ups as businesses are increasingly adopting technology to drive agility. Indian SaaS start-ups today cater to a large market of small businesses and digital native start-ups. Complementing the market demand is a supportive policy landscape and rising investor interest from foreign and domestic investors which are helping Indian SaaS start-ups flourish in the local and global market. 

As part of their increased focus on security, remote working and customer centricity to sustain growth in a highly competitive market, the past few years have seen the rising adoption of digital tools by smaller businesses (that were traditionally low-digital maturity businesses). Indian small and medium sized businesses (SMBs) are exploring the cloud to increase business agility and build capabilities to perform tasks that would have been time and cost-prohibitive for legacy technology. 

Although most SMBs are at the beginner stage of cloud adoption, 93% are planning to increase their spends on cloud for 2021. A 2021 International Data Corporation (IDC) survey indicates that over the next couple of years, SMBs in India intend to increase their percentage of workload on cloud.

According to research estimates, the Indian SMB sector offers a US$ 8.7 billion market opportunity for horizontal SaaS solutions by 2025 – a 52% growth from the estimated market in 2020. Retail, manufacturing and education are expected to account for almost half of the total market opportunity. Finance, accounting and payment systems are the more popular SaaS solutions among SMBs, while there is an increasing adoption of CRM, ERP and marketing-focused solutions.

Increased Access to Capital for SaaS Companies 

The Indian start-up ecosystem has seen rising investments in the last couple of years as its maturing start-up ecosystem moves beyond consumer apps to enterprise technology. Indian start-ups are now creating quality products for international markets, which are attracting capital from both foreign and Indian investors. Indian SaaS companies have raised investments worth more than US$ 13 billion in the last 5 years. The rapid capital influx is driven by large rounds going to software companies that account for the majority of VC funding.

While global investors continue to dominate the SaaS venture capital space in India, Indian investors are also increasing their interest in the space, as large conglomerates are racing to set up venture capital funds and accelerator programs for start-ups. Some first-generation SaaS founders and entrepreneurs are also investing in newer SaaS start-ups, thereby driving the growth of Indian SaaS. 

For more on the way ahead for Indian SaaS ecosystem, read the CII – EY report titled India: The Next Global SaaS Capital.

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