Indian SaaS firms to have 8% of world market, get $35 bn in revenue: Study

Most Indian investors expect to increase, maintain capital allocation to sector

Indian companies will command 8 per cent of the global Software as a Service (SaaS) market by 2027 as they generate $35 billion in annual recurring revenue (ARR), said a report on Wednesday.

Indian SaaS companies are growing 20–25 per cent annually despite market headwinds, according to Bain & Company’s ‘India SaaS Report 2022--Remaining steady through turbulence’.

Indian companies’ ARR of $12–$13 billion formed 5 per cent of the global SaaS market in 2022, increasing four-fold in five years. India’s SaaS ecosystem has become a global leader, behind only the US in scale and maturity.

Arpan Sheth, partner at Bain & Company and lead of the private equity and alternative investor practice in India, said the Indian SaaS ecosystem has seen tremendous progress in three years, growing by 3–4x on every parameter--from ARR to funding.

“This ecosystem is being driven by a flywheel comprised of SaaS companies who are successfully executing on their global ambitions and an investor base that believes in the potential of Indian SaaS,” said Sheth. “We are now seeing the emergence of a set of Indian SaaS companies who have a right to win not just in India, but globally.”

Of the 1,600 Indian SaaS companies that were funded over the past five years, around 14 of them exceed $100 million in ARR. In 2022, private equity and venture capital (VC) investments in Indian SaaS reached $5.1 billion: up about 20 per cent compared to 2021.

The outlook for Indian SaaS investment remains broadly positive for the next 12 months. About 90 per cent of Indian investors expect to increase or maintain their capital allocation to SaaS firms.

“Indian SaaS has remained a comparative bright spot for early-stage investors in a VC market that saw a slowdown in 2022, ” said Prabhav Kashyap, Partner at Bain & Company and co-author of the report. Investors in Indian SaaS are excited by the opportunity to back companies across an array of SaaS sub-categories.

The report said that buyer sentiment in SaaS will remain broadly positive going forward as well, with approximately 65 per cent of enterprise software decision-makers expecting to increase their 2023 software budgets. While software buyer sentiment has softened in the second half of 2022, Indian SaaS companies continue to bank upon innovative strategies. They are present in multiple categories that are expected to see increased spending. This includes segments such as security, cloud infrastructure and analytics.