Indian SaaS start-ups raise record $4.5 billion in 2021

Indian software-as-a-service start-ups have raised a record $4.5 billion from investors in 2021, nearly three times the previous year, led by innovation, access to capital, and a larger market size. As per the report, investments in Indian SaaS firms rise to 165% in 2021 alone. The rising capital inflow in the segment over the last two years has given birth to a string of SaaS unicorns. India now has 13 billion-dollar SaaS firms compared to 2018, creating six more SaaS unicorns being valued at over a billion dollars.

There are many companies with $25-30 million Annual Recurring Revenue, and quite a few with over $50 million and even $100 million. Notably, seven to nine Indian SaaS companies have now reached USD 100 million in annual recurring revenue. With an increasing number of world-class founders and strong investor support, Indian SaaS companies are poised to reach USD 30 billion in revenue, capturing 8% to 9% share of the global SaaS market by 2025. India currently has 8,000–9,000 SaaS companies, up from 4,000–5,000 five years ago, of which over 1,300 have raised funds. More than 60 SaaS companies have drawn late-stage capital—Series C or above rounds—over the last five years.

Large SaaS deals have also happened at aggressive valuation multiples at 30-40 times revenue and sometimes even more, as companies raise rounds based on distant-future predictions and optimize a frenzied deal-making environment. Newer SaaS startups are also a result of employees at older SaaS firms leaving to start up, with over 500 such employee turned founders. Now the startups are building software for local markets - Indian customers and businesses, shifting from the US, which is where most companies earn their revenue from.

Horizontal business software, including enterprise collaboration, events tech, artificial intelligence (AI), and human resources (HR) continue to be the leading segment for investors in the post-pandemic world. Horizontal business software providers contribute nearly 60% of the overall deal value being put into Indian SaaS startups. Companies such as Classplus, Khatabook and Darwinbox are building software to digitise specific industries such as education, bookkeeping and human resources, respectively.

Traditionally, the companies are focused on larger markets like the US, which has sophisticated buyers who will adopt software more easily. It is more challenging to convince Indian enterprises or small and medium businesses to adopt software. It is a value-conscious market.